An intangible asset is an asset that has no physical form. It is something that you cannot touch or see, but it has value. Intangible assets can be very valuable, and they can be used to generate income or save money. In this post we explain what they are and why they are important to individuals and businesses.
Intangible Assets Definition
Intangible assets are non-physical assets that have a value to the company but cannot be seen, held, or touched. They are long-term assets that are not expected to be converted into cash within the next year. Examples include patents, copyrights, trademarks, and goodwill.
Types Of Intangible Assets
There are many types of intangible assets that can be held by either an individual or a business. Common examples of these can include;
- Brand recognition and goodwill
- Copyrights
- Trademarks
- Trade secrets
- Patents
- Proprietary technology
- Business methods
- Customer lists
- Subscriber lists
- Membership lists
- Licenses
- Franchises
- Permits
- Government contracts
Are Stocks And Bonds Intangible?
Stocks and bonds are both intangible assets, meaning they can’t be physically touched or seen. Despite this, they’re both extremely important components of a well-rounded and diversified investment portfolio.
Stocks represent ownership in a company, while bonds are essentially IOUs from the issuing entity. Both have the potential to generate income and grow in value over time, making them ideal investments for people looking to build wealth.
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Intangible Assets Valuation
The main intangible assets valuation methods are the relief from royalty method and the multi-period excess earnings method.
The relief from royalty method estimates the value of an intangible asset by calculating the amount of royalty that would have to be paid to a third party for the use of the asset. This method is most commonly used for valuing patents and trademarks.
The multi-period excess earnings method estimates the value of an asset by calculating the present value of the expected future earnings that can be attributed to the asset. This method is often used for valuing customer relationships, brand names, and trade secrets.
Business Importance
Intangible assets are important for businesses because they can be used to generate revenue and create value for the company. They can give a business a competitive edge over it’s rivals. As we’ve seen, these assets can include patents, copyrights, trademarks, and trade secrets. These assets can be very valuable to a company and can help them to generate revenue and create value for shareholders.
Some good examples of businesses that use intangible assets are huge tech companies such as Apple, Microsoft, and Google. These companies have built their businesses by developing and acquiring these assets. They have been able to generate billions of dollars in revenue and create immense value for their shareholders, becoming trillion dollar companies as a consequence.
We can see how Apple, Google and Microsoft have all used their intangible assets to generate revenue in different ways. For example, Apple has used its brand to sell millions of iPhones and other technology products. Google has used its unique algorithms to sell digital advertising to businesses. And Microsoft has used its patents to collect licensing fees for it’s essential software programs.
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Conclusion
As we can see, intangible assets are very important to both businesses and individuals. They can be used to generate income, reduce costs, or create value for shareholders. Some common examples of these include patents, copyright and trademarks.Learn the difference between intangibles and tangible assets.
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