Background
The introduction of new technology often marks the beginning of a new era: railroads, electrification, and combustion engines produced momentous changes even before the advent of the “digital revolution”. The current wave of innovation is one of the factors behind the rise of intangible assets, which now account for a larger proportion of corporate assets than tangible ones.
This transformation towards more intangible assets has had profound effects on the valuation of assets and businesses. It is the object of the current series of Perspective Papers the IVSC has published. In Parts 1 and 2 of our series, we examined the “Case for Realigning Reporting Standards with Modern Value Creation” and focused on human capital. In Part 3, we examined brands and reputation. In this paper, the fourth of our series, we address the topic of technology valuation.
In this paper we will:
- Define technology as it pertains to valuation;
- Examine the lifecycle of technology and the difficulty of realising certain benefits as commercial profits;
- List the salient features of technology that are critical in a valuation;
- Use Apple’s launch of the iPhone to contrast firm value and value of technology;
- Gauge investor reactions to these developments in the valuation of technology;
- Outline the ways in which IVS can be deployed to better manage technology valuation risk.