What Are Intangible Assets?

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Quick definition: these are assets that a company owns that are not physical and can sometimes be unquantifiable.

Short-term assets owned by a company are cash, receivables and inventory. Long-term assets are items like equipment, real-estate, and IT systems.

Examples of intangible assets are intellectual property, patents, and brand value in the eyes of customers and goodwill.

You might be thinking that a lot of tech companies are likely to own intangible assets -- and that is correct.

And there’s a reason we’re talking about intangible assets now.

Marco investment strategists at Bank of America Global Research wrote in a recent note that "investors should reconsider the meaning of “value,” adding that "Traditional book value ignores many of the resources that are most important to companies today.” Book value is assets minus liabilities, or shareholders equity (not market value of the equity).

Oftentimes, traditional book value excludes intangible assets. However, the U.S. economy is increasingly centered on tech companies like software and semiconductor companies, which own large values of assets like intellectual property, patents and others. By 2018, 84%, or more than $20 trillion, of S&P 500 assets were intangible. That’s up from 68% in 1995, according to B-of-A.

Looking at stocks’ market prices as a multiple of book value, stocks would have significant upside, the strategists said, if those stock prices were multiples of book value inclusive of intangible assets. Of course, stocks mainly trade on earnings multiples, but by the way, the expected future earnings stream is aided by the benefits of these intangible assets.

Have investors not yet discovered the full potential of some of the most prominent tech companies? Keeping watching TheStreet.com.

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