Assets are not just Tangibles

At one point or another in your business education, you came across your first balance sheet. And you saw there, written in bold on the top left side of it, this word: "Assets." A category of things that aid a company in growing its value. These can be buildings they own, tools, vehicles, software, people, etc. Basically any item that can realistically be associated with a material value, that a company can choose, if the need arises, to put up for sale on the open market and receive a fair market value for it.

But it’s not so cut and dry.

Mostly because our understanding of accounting hasn’t really adapted since the Industrial Revolution. Like, what’s the value of a piece of software? Is it the license price? Or is it the value it adds to your business? What the hell is the “fair market value” of that?!

And here’s where it gets even murkier. Undoubtedly, you also came across this category of assets called “intangibles,” spearheaded by the all-knowing and all-encompassing accounting line of “goodwill.” I personally hate that word. Sounds like charity. Sounds like etiquette. Sounds like anything other than what it actually represents, which is a measure of arbitrage gains from the sale or purchase of an asset that is higher than its market value agreed at the time of the contract. How does “goodwill” cover that? No idea. But it is a stark example of how, in a world where most of the value we produce is in intangible assets: lines of code, numbers on a screen, opinions around our brand identity, faith in a CEO’s vision. We still do not have a good way of accounting for these.

So here’s today’s lesson: Assets are not just Tangibles. And let me make that clearer, since I know most of you reading this do not work in heavy industries: Assets are MOSTLY not Tangible.

Image courtesy of WIX Media

The Hidden Treasures: The True Value of Intangible Assets

Let’s go deeper. How do we account for something that is immaterial? How do we put a price on something that doesn’t actually “exist” in the strict sense of the word?

Well… there are a few ways. But before that, let’s understand why it matters.

Look at Tesla. Tesla’s stock basically plummeted since January of this year. By the time of writing this article, rumors were circulating that Tesla’s board was even considering hiring a new CEO, ousting its controversial, chainsaw-wielding current leader, Elon Musk. All this because of a steep drop in Tesla value.

But why? Did Tesla cars suddenly start exploding on the roads? Did the quality of its vehicles fall off from one day to the next? Did its factories close down? None of that. In fact, the new Model 3 Tesla that came out this year is a veritable improvement on what was already a best-selling car that was great value-for-money and a top performer in its category.

The problem wasn’t with its material assets.

It was the intangibles.

Since January, Elon Musk has been on a rampaging campaign of self-mutilation, destroying his public image. Terrible thing to do for an individual. Utter financial suicide for the CEO of a major company whose brand identity is inextricably linked to his public perception. As soon as Tesla became branded as a “far-right accessory” in line with its CEO’s political exploits, the stock plummeted. Cars were set on fire, sales of bumper stickers with “I bought this before Elon went crazy” went through the roof, and orders for new Tesla vehicles vanished overnight.

So, if you’re wondering what the price of Tesla’s intangible asset of brand equity (yes, equity is actually in the title, go figure) is: as of writing this article it stands at roughly 50% of its total value from an all-time high in December 2024. Or roughly $800 billion. That’s a LOT of dough to not be tracking on your balance sheet.

Why Traditional Accounting Is Failing Us

In 1975, intangible assets made up just 17% of the S&P 500’s total market value. Today, it’s over 90%. Let that sink in. Our accounting system still worships at the altar of industrial-era rules, while companies like Meta, Salesforce, or OpenAI are built on servers, code, and ideas. You can’t touch “user experience” or “network effect” with your hands. But they’re worth billions.

So what do we do? First, we admit the system is broken. Then, we look at how to fix it.

The Methodologies: Putting a Price on the Invisible

There are three major valuation methods used for intangible assets:

1. Cost Approach: How much would it cost to recreate the asset? Useful for software, training programs, or proprietary databases. For example, if you built a machine learning model over 2 years with $10 million in developer salaries, that’s a starting point.

2. Market Approach: What’s the going rate for similar assets? This works well for trademarks, domains, and patents. Think of Disney buying Marvel: part of the valuation included comparable IPs in the entertainment world.

3. Income Approach: What future income will the asset generate? This is the gold standard for IP-heavy businesses. Amazon Prime’s brand loyalty and Netflix’s recommendation engine are prime examples.

   
   

None of these methods is perfect. But they’re the best we’ve got, and vastly underused.

The Management Playbook for Intangibles

Managing intangible assets is a whole different ballgame. It’s part legal strategy, part brand management, and part tech investment.

• Document Everything: Institutional knowledge is gold. If your star developer leaves, what’s left? Build knowledge repositories, version control systems, and clear internal processes.

• Invest in IP Strategy: File patents. Register trademarks. License your content. Own your ideas, or someone else will.

• Cultivate Culture and People: Your team’s knowledge and cohesion is an asset. Google didn’t dominate because of just servers. It was the people and the culture. Think of HR as intellectual asset management.

• Guard Your Reputation: In a digital-first world, your brand travels faster than your sales team. Crisis PR and consistent storytelling are intangible insurance.

  
  

Advice for Businesses: Time to Evolve

1. Audit Your Intangibles: Make a list. Brand, codebase, training IP, customer lists, influencer relationships, employee expertise. If it gives you an edge, it’s an asset.

2. Make Intangibles Part of Your Strategy: Don’t treat them as an afterthought. Spotify’s entire business runs on IP and brand, not physical assets.

3. Tell the Story to Investors: The market is catching up. Investors are hungry for narratives around competitive moats, tech infrastructure, and brand loyalty. Your annual report should scream how your intangible assets are crushing it.

4. Push for New Standards: If you’re in a position of influence, advocate for updated accounting regulations. Lobbying isn’t just for fossil fuel companies. The GAAP and IFRS standards need an upgrade.

5. Align ESG and Intangibles: Environmental, social, and governance factors are deeply tied to intangible value. A clean record, inclusive culture, and ethical supply chain increase your perceived, and actual, value.

   
   

Conclusion: Rewriting the Balance Sheet

The rules of value have changed. Our accounting hasn’t.

In a world where value hides in brand perception, UX design, and AI algorithms, clinging to a 19th-century balance sheet isn’t just outdated, it’s dangerous.

So next time you look at your company’s books, ask not just what’s there. Ask what’s missing. Chances are, it’s where your real value lives.

Your assets are not just tangible. They never were. The only thing that’s changed is that now, you have no excuse not to know it.