While evaluating companies, it has become increasingly relevant to focus on the intangible assets a company has. There was a time when the valuation of a company was based largely on its hard assets like factory, shops, physical infrastructure etc. Times have changed.

Companies that are greatly admired and valued by the stock markets are evaluated by the intangible assets that they have created and continue to build upon. These assets are not physically verifiable, nor are they insurable, and might be difficult to value. A company may not be able to sell these assets or raise loans against them. Yet, they are the most important assets and explain most of the valuation of the companies in today’s interconnected world.

What are these intangible assets?

• Brand Loyalty
• Customer Focus
• Technological prowess
• Intellectual property
• Company culture

And many more things which make today’s companies successful.

Firms which command higher valuations are those companies which understand customer needs, fulfil them seamlessly, are proactive, have a culture of innovation, concentrate on efficient delivery mechanisms and build a culture of relentless improvement. Markets have realised that these intangibles matter, far more than tangible assets and have started to assign valuations based on these softer more difficult to measure assets.

When we focus on Terminal Value investing, we realise that the long-term value of a company depends more on its brand value, customer stickiness, NPS scores, future readiness and other intangible assets which differentiate it from other firms. Intangible assets are a crucial aspect that Terminal Value Investing relies on to ascertain the true value and potential of a company in today’s world!