Intangible Capital and the Valuation of
Companies: A Comparison of German and
U.S. Corporations
Charles Hulten
University of Maryland, NBER &
The Conference Board
Janet Hao
The Conference Board
Kirsten Jaeger
The Conference Board
Project funded by the European Commission under the Seventh Framework
Programme
Grant No 217512
Website : www.coinvest.org.uk
Market to Book Value Puzzle
The Puzzle
Accounting Principle: Equity=Assets-Liabilities
Theoretically:
Equity=Market Value
Actually:
Equity<<Market value
• Absence of most intangible assets from financial statements
• Expenditure on intangibles produced within a firm often treated as a
current expense, not as an investment in firm’s future.
 No output or value created.
• No market transactions to measure the value of R&D and brand
created within the company
• Difference between stock-market value of a firm and the book value of
its equity treated as “goodwill” and (more or less) loosely associated
with intangibles.
2
Book Equity Does Not explain Market
Values of U.S. Companies
$ trillions
Decomposition of Stock Market Value
Selected S&P Compustat Companies
Source: Hulten-Hao (2008)
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
Residual Rents
Equity
Market value >> Equity
97
98
99
00
01
02
year
03
04
05
06
Adding Intangible Assets Can Fill the Gap
$ trillions
Decomposition of Stock Market Value
Selected S&P Compustat Companies
Source: Hulten-Hao (2008)
$8,00
$7,00
$6,00
$5,00
$4,00
$3,00
$2,00
$1,00
$0,00
Residual Rents
Organizational Capital
R&D Assets
Equity
97
98
99
00
01
02
year
03
04
05
06
Goal of the Analysis
Market-to-book gap is too large to be attributed solely to the
mismeasurement of conventional equity / vicissitudes of the stock
market.
• Construct estimates of the cost-in-house investment in R&D and
organizational capital
• Include “own” intangibles on corporate financial statements
• Compare traditional financial statements with “new view” balance
sheets and income statements
 narrows the gap between book value and market value
• Matched-company comparisons
 Compare performance of German companies with US companies
US Companies: 617 R&D intensive firms
+ 6 large pharmaceutical companies
German companies: 12 German companies + Novartis
5
Approach of the analysis
• Traditional balance sheet and income statement
• New view balance sheet and income statement:
capitalize own R&D and organizational capital
– Estimate the cost of in-house investment in R&D
Current cost of R&D plus markup for profit (total operating surplus is
allocated to R&D according to R&D’s share in current expenses)
– Estimate the cost of own production of organizational capital:
CHS procedure - translate approximate proportions of brand equity and
organizational development investment into a corresponding fraction of
SG&A spending (~30%)
– Amortization of R&D and organizational capital
R&D: 10 year useful life – Organizational capital 5 year useful life
• Comparison of traditional and “new view” financial statements
6
“New View“ Income Statement
Average of 12 German companies + Novartis
and Pharma
All 2008
(€ millions)
Trad.
+R&D
+Org C.
Pharma 2008
(€ millions)
Trad.
+R&D +Org C.
1. Conventional Revenue
2. Own Prod. R&D
3. Own Prod. org cap
4. Total Adj.Revenue
41,127
0
0
41,127
41,127
2,422
0
43,549
41,127
2,422
1,608
45,157
17,812
0
0
17,812
17,812
2,977
0
20,789
17,812
2,977
2,057
22,846
8. Total Current Cost
35,527
35,527
35,527
13,604
13,604
13,604
5,600
8,022
9,630
2,410
0
0
3,190
2,815
2,016
6.53
2,410
2,233
0
3,379
3,004
2,205
8.18
2,410
2,233
1,774
3,213
2,838
2,038
9.03
4,208
1,461
0
0
2,747
2,384
1,943
1.94
7,185
1,461
1,956
0
3,768
3,405
2,964
3.73
9,242
1,461
1,956
1,734
4,091
3,728
3,287
4.71
9. Operating Surplus
10. Depreciation
11. Amort. own R&D
12. Amort. own org Cap
13. Adj. Operating Surplus
15. Before-Tax Income
17. After-Tax Income
18. Earnings per Share
7
“New view“ Balance Sheet
Average of 12 German companies + Novartis
All 2008
(€ millions)
Pharma 2008
(€ millions)
Conventional Balance Sheet 2008
2. Plant and Equipment
3. Purchased Intangibles
4. Goodwill
6. Total Assets
7. Total Liabilities
8. Equity
Trad.
8,264
5,704
3,140
56,098
38,957
16,988
+R&D
8,264
5,704
3,140
56,098
38,957
16,988
+Org C.
8,264
5,704
3,140
56,098
38,957
16,988
Trad.
5,300
7,419
4,584
31,045
15,735
15,310
+R&D
5,300
7,419
4,584
31,045
15,735
15,310
+Org C.
5,300
7,419
4,584
31,045
15,735
15,310
Adjustments for own Intangibles
9. R&D Capital
10. Organizational Capital
11. Assets adj. for own Intangibles
12. Equity adj. for own Intangibles
0
0
55,946
16,988
16,256
16,256
5,922
78,124
39,166
0
0
31,045
15,310
16,185
0
47,230
31,496
16,185
7,691
54,922
39,187
Company Valuation
13. Market Value of Equities
17. Total Intangible Assets
18. Tobin's Equity Qe
19. % MV value explained (1/Qe)
35,733
8,844
2.10
0.48
35,733
25,100
1.07
0.93
35,733
31,022
0.91
1.10
34,794
12,003
2.27
0.44
34,794
28,189
1.10
0.91
34,794
35,880
0.89
1.13 8
0
72,202
33,244
Key Results – all sample companies, 2008
2008
US
Ger
%MV explained w/o Intan
0.30
0.48
%MV explained w Intan
0.77
1.10
ROE w/o Intan
0.33
0.11
ROE w/ Intan
0.17
0.05
Debt/EQ w/o Intan
2.15
2.62
Debt/EQ w/ Intan
0.83
1.15
R&D spending/conventional revenues
0.08
0.09
(R&D & org. assets)/total conventional assets
0.60
0.35
Note: The US sample includes 633 R&D intensive firms. The Germany
sample includes Adidas, Audi, BASF, Bayer, BMW, Daimler, Merck, SAP,
Siemens, Stada and Volkswagen.
Matched-Company Comparisons 2008
1. Electronics
US: GE, United Technologies Corporation; DE: Siemens
2. Pharmaceuticals – large
US: Johnson & Johnson, Pfizer; DE: Bayer; CH: Novartis
3. Software
US: Oracle; DE: SAP
4. Chemicals
US: Dow, DuPont; DE: BASF
10
Key dimensions – matched pairs
GE
UTX
Siemens
J&J
Bayer
Pfizer Novartis
%MV explained w/o Intan
0.41
0.26
0.42
0.23
0.41
0.44
0.43
% MV explained w Intan
0.76
0.58
1.11
0.53
1.22
1.45
1.08
ROE w/o Intan
0.15
0.29
0.21
0.31
0.11
0.14
0.16
ROE w/ Intan
0.11
0.17
0.06
0.13
0.05
0.08
0.10
Debt/EQ w/o Intan
0.86
0.71
0.71
0.5
0.69
0.93
0.55
Debt/EQ w/ Intan
0.77
0.53
0.48
0.47
0.43
0.28
0.22
Oracle
Sap
Dow
DuPont
BASF
%MV explained w/o Intan
0.22
0.18
0.45
0.19
0.51
%MV explained w Intan
0.52
0.58
0.83
0.64
0.96
ROE w/o Intan
0.24
0.26
0.04
0.28
0.16
ROE w/ Intan
0.19
0.15
0.04
0.06
0.1
Debt/EQ w/o Intan
0.51
0.48
0.7
0.8
0.63
Debt/EQ w/ Intan
0.31
0.23
0.56
0.55
0.48
Findings:
• Addition of internally intangibles increases the percentage
of market value that can be explained by equity
- All companies 2008: Germany 48%  110%; US 30%  77 %
- Pharmaceuticals 2008: Germany 44%  113 %; US 29%  100 %
• German companies
– Have larger fraction of market capitalization explained by
conventional equity, both before and after own-intangibles are
counted
– Have lower return of equity, before and after own-intangibles
– Have higher debt-equity ratios
– And are comparably R&D intensive as measured by ratio of direct
R&D outlays to conventional revenue, but less own-intangiblesintensive as measured by R&D and organizational stocks as
fractions of total conventional assets
12
Caveats
• “New view” estimates on intangibles are inaccurate. They
are based on imputations rather than on market
transactions, and are inferred from the cost of investment
• The German sample is much smaller, thus more prone to
idiosyncratic variation (it is more heavily weighted to the
auto industry)
• Different accounting system in the US and Germany: US
GAAP vs. IFRS
• Differences is corporate structure & governance may
matter, so accounting differences may not reflect
underlying structural differences
13
Treatment of R&D under US GAAP and IFRS
US. GAAP
• All costs related to research and development are expensed as incurred,
with few exceptions (certain website development costs and costs
associated with developing internal use software)
IFRS: IAS 38
• Differentiation between “research” and “development” costs
• Research expenses are expensed as incurred
• Development costs are capitalized if specified criteria are met
– Development cost can be measured reliably
– The product is technically and commercially feasible
– Future economic benefits are probable
• Conditions for capitalization are often not satisfied in full
development costs mostly expensed
14
Development costs in matched company groups
Electronics
Pharmaceuticals – large
Pharmaceuticals – small
GE, UTC: US GAAP – expensed
as incurred
Siemens*:
Before 2007: expensed all
Since 2007: research findings
applied to a plan or design for the
production of new or substantially
improved products and processes
J&J, Pfizer: US GAAP –
expensed as incurred
Bayer*:
Expensed as incurred, conditions
are not satisfied
Novartis*:
Regulatory and other uncertainties
inherent in the development of
new products preclude the
capitalization
Forest: US GAAP – expensed as
incurred
Stada*:
In 2008, development costs in the
amount of € 14.6 million
were capitalized as internallycreated intangible assets
Software
Chemicals
Oracle: US GAAP – expensed as
incurred
SAP*:
Technical feasibility of software is
reached shortly before products
are available for sale. Costs
incurred after technical feasibility
have not been material. All R&D
costs are expensed as incurred.
Dow, DuPont: US GAAP –
expensed as incurred
BASF*:
Capitalized development costs are
mostly in-house software (Ignored
in our analysis)
We adjusted R&D
expenditures in our
analysis accordingly
*Capitalization of development costs only in accordance with narrowly defined conditions
15
Conclusions I
• Capitalized internal R&D and organizational capital  large impact on
income statements and balance sheets both countries
• Own-intangibles appear to be more important in U.S. business, though
this is not a general rule
• Current practice of largely omitting intangibles from financial
statements  biased perspective about the drivers of company value
• Addition of internally intangibles increases the percentage of market
value that can be explained by equity
- All companies: Germany 48%  110%; US 31%  75 %
- Pharmaceuticals: Germany 44%  113 %; US 29%  100 %
16
Conclusions II
• Over-explanation may be caused by our assumptions on own R&D
and organizational capital
• Intangibles can explain most (or all) of the market-to-book gap does
not necessarily mean that they actually do explain the gap.
• But: intangibles = important factor to determine the value of
companies on both sides of the Atlantic.
• Direct company comparisons generally support previous findings, but
there are exceptions.
• Note that Siemens, BASF, SAP, Bayer, and Novartis are global
companies, as are the U.S. counterparts, and may therefore not be
representative of the average
17
Back-up charts
18
Accounting Issues: General areas with significant
differences between US GAAP & IFRS (I)
•
Equity and financial liabilities (IAS 1, IAS 27, IAS 32, IAS 39)*
e.g. IFRS: Components of compound financial instruments with liability and equity
characteristics, are accounted for separately.; US GAAP: Instruments with
characteristics of both debt and equity are not always split up
•
(Post ) Employee benefits (IAS 19, IFRIC 14)*
e.g. IFRS: No further differentiation between post-employment benefits; US GAAP:
Division of post-employment benefits into post-retirement benefits and other postemployment benefits. Accounting for post-employment benefits depends on the
type of benefit provided
•
Income taxes (IAS12, SIC-12, SIC-25)*
e.g. IFRS: Deferred tax liability is recognised for the difference in tax bases
between jurisdictions as a result of an intra-group transfer of assets, US GAAP: is
not recognised...
*See back-up slides for more details
19
US GAAP & IFRS: General areas with significant
differences (II)
•
Inventories (IAS 2)*
e.g. IFRS inventories measured at the lower of cost and net realisable value; US
GAAP measured at the lower of cost and market.
•
Property, Plant, and Equipment (IAS 16, IAS 23, IFRIC 1)*
e.g. IFRS revaluation possible under certain circumstances; US GAAP not
permitted
•
Impairment of Assets (IAS 36, IFRIC 10)*
e.g. IFRS goodwill allocated to cash-generating units, US GAAP goodwill
allocated to reporting units
•
Intangible Assets (IFRS 3, IAS 36, IAS 38, SIC–32) next slides
In general, IFRS is substantially similar to US GAAP
*See back-up slides for more details
20
Comparison of US GAAP and IFRS Treatment
of Intangibles (Similarities)
•
Intangible assets…
- are assets, not including a financial asset
- lacks physical substance
- are identifiable if they are separable or arise from contractual or legal rights
- generally are recognised initially at cost = fair value of the consideration given
- with finite useful lives are amortised over their expected useful lives
•
Direct-response advertising, software developed for internal use, and software
developed for sale to third parties are recognised initially at cost.
•
Goodwill: recognised only in a business combination and is measured as a residual.
Goodwill and other intangible assets with indefinite lives: no amortisation but
impairment testing at least annually.
•
Subsequent expenditure on an intangible asset : No capitalisation unless it can be
demonstrated that the expenditure increases the utility of the asset, (broadly like IFRS)
•
No capitalization possible: internally generated goodwill, costs to develop customer
lists, start-up costs and training costs.
21
Comparison of US GAAP and IFRS Treatment
of Intangible Assets - Significant Differences
IFRS
US GAAP
•Expenditure on relocation or reorganisation is • Certain relocation costs following a business
expensed as incurred.
combination are capitalised. Other relocation or
reorganisation expenditures are expensed as
incurred, like IFRS.
•Intangible assets may be revalued to fair value • Intangible assets cannot be revalued.
only if there is an active market.
•Internal research expenditure is expensed as • Both internal R&D expenditure is expensed as
incurred. Internal development expenditure is incurred. Special capitalisation criteria apply to
capitalised if specific criteria are met. These
direct-response advertising, software developed
capitalisation criteria are applied to all internally for internal use, and software developed for sale
developed intangible assets.
to third parties, which differ from the general
criteria under IFRS.
•Advertising and promotional expenditure is
•Direct-response advertising expenditure is
expensed as incurred.
capitalised if specific criteria are met. Other
advertising and promotional expenditure is
expensed as incurred, like IFRS.
22
Source: KPMG (2008): IFRS compared to U.S. GAAP: An overview
Possible impact of US GAAP and IFRS differences
on Income Statements and Balances Sheets
•
Compound financial instruments & Pensions and post-employment benefits
- Different treatment under IFRS and US GAAP results in differences between
carrying amounts of assets and liabilities
•
Capitalization of development costs
- IFRS: Treatment of intangibles as assets in general: equity 
- Our analysis: adjusted R&D = R&D – amortization of capitalized development costs
current costs , operating surplus 
- Automobile companies: highest share of capitalized development cost in R&D costs
- Pharmaceuticals: requirements for capitalisation seldomly fulfilled due the high level
of risk up to the time products are marketed
•
Deferred taxes
- Deferred taxes on intragroup profit: Net loss or depending on
tax rate of acquiring company (IFRS)
< or > tax rate in the seller’s or manufacturer’s jurisdiction (US GAAP)
23
Key Results – all sample companies, 2006
2006
US
Ger
%MV explained w/o Intan
0.30
0.66
%MV explained w Intan
0.68
1.41
ROE w/o Intan
0.22
0.1
ROE w/ Intan
0.15
0.06
Debt/EQ w/o Intan
1.81
2.17
Debt/EQ w/ Intan
0.80
1.01
R&D spending/conventional revenues
0.08
0.09
(R&D & org. assets)/total conventional assets
0.53
0.36
Note: The US sample includes 633 R&D intensive firms. The Germany
sample includes Adidas, Audi, BASF, Bayer, BMW, Daimler, Merck, SAP,
Siemens, Stada and Volkswagen.
24
“New View“ Income Statement – Large Pharmaceutical companies
Bayer 2008
(€ millions)
Trad. +R&D +Org C.
1. Conventional Revenue
2. Own Prod. R&D
3. Own Prod. org cap
32,918 32,918 32,918
0
0
3,277
0
3,277
3,566
4. Total Adj.Revenue
32,918 36,195 39,761
8. Total Current Cost
26,652 26,652 26,652
9. Operating Surplus
10. Depreciation
11. Amort. own R&D
12. Amort. own org Cap
13. Adj. Operating Surplus
15. Before-Tax Income
17. After-Tax Income
18. Earnings per Share
6,266
2,722
0
0
3,544
2,356
1,719
2.21
Novartis 2008
Pfizer 2008
J&J 2008
(€ millions)
(€ millions)
(€ millions)
Trad. +R&D +Org C. Trad. +R&D +Org C. Trad. +R&D +Org C.
29,12
29,126 29,126 33,064 33,064 33,064 43,601 43,601 43,601
6
0 10,738 10,738
0 7,559 7,559
0 6,792 6,792
0
0 5,555
0
0
610
0
0 3,471
29,12
35,918 39,389 33,064 43,802 49,357 43,601 51,161 51,771
6
21,16
21,169 21,169 18,068 18,068 18,068 30,605 30,605 30,605
9
9,543 13,109 7,957 14,749 18,220 14,996 25,735 31,289 12,996 20,556 21,166
2,722 2,722 1,826 1,826 1,826 3,481 3,481 3,481 1,937 1,937 1,937
3,025 3,025
0 6,403 6,403
0 3,696 3,696
0 4,094 4,094
0 2,905
0
0 5,525
0
0 4,699
0
0 3,283
3,796 4,457 6,131 8,829 9,016 11,515 15,850 15,880 11,059 14,922 10,833
2,608 3,269 6,497 9,195 9,382 6,630 10,966 10,996 11,579 15,442 11,353
1,971 2,632 5,605 8,303 8,490 5,505 9,841 9,870 8,857 12,720 8,631
2.54
3.39 2.46
0.82
1.46
1.47 3.16
4.54
3.08
3.66
3.75
25
*Pharma = Bayer, Merck, Stada, and Novartis
“New View“ Balance Sheet – Large Pharmaceutical companies
Bayer 2008
(€ millions)
Conventional Balance Sheet
2. Plant and Equipment
3. Purchased Intangibles
4. Goodwill
6. Total Assets
7. Total Liabilities
8. Equity
Adjustments for own
Intangibles
9. R&D Capital
10. Org. Capital
11. Assets adj. for own Intang
12. Equity adj. for own Intang
Company Valuation
13. Market Value Equities
17. Total Intang.Assets
18. Tobin's Equity Qe
19. % MV value explained
Trad. +R&D +Org C.
Novartis 2008
(€ millions)
Trad.
Pfizer 2008
(€ millions)
+R&D
+Org C.
Trad.
8,960 8,960
6,521 6,521
7,719 7,719
53,555 53,555
19,057 19,057
34,498 34,498
8,960
6,521
7,719
53,555
19,057
34,498
9,088
12,121
14,681
76,022
36,656
39,367
+R&D +Org C.
Trad.
+R&D +Org C.
9,492 9,492
13,951 13,951
8,647 8,647
52,511 52,511
36,171 36,171
16,340 16,340
9,492
13,951
8,647
52,511
36,171
16,340
0 19,633
0
0
52,511 72,144
16,340 35,973
19,633
0 68,469 68,469
0 44,068
0 37,588 37,588
12,877
0
0 22,112
0
0
0
0 13,913
85,021 53,555 91,142 105,055 76,022 144,491 166,603 58,078 102,146
48,850 34,498 72,085 85,998 39,367 107,835 129,947 29,076 73,144
39,911 39,911 39,911 79,892 79,892
32,090 51,723 64,600 14,240 51,827
2.44 1.11
0.82 2.32
1.11
0.41 0.90
1.22 0.43
0.90
9,088
12,121
14,681
76,022
36,656
39,367
J&J 2008
(€ millions)
9,088 9,825 9,825 9,825
12,121 9,559 9,559 9,559
14,681 9,383 9,383 9,383
76,022 58,078 58,078 58,078
36,656 29,001 29,001 29,001
39,367 29,076 29,076 29,076
44,068
21,760
123,905
94,904
79,892 89,343 89,343 89,343 124,390 124,390 124,390
65,740 26,802 95,270 117,382 18,943 63,011 84,770
2.27
0.83
0.69
4.28
1.70
1.31
0.93
0.44
1.21
1.45
0.23
0.59
0.76
1.08
26
*Pharma = Bayer, Merck, Stada, and Novartis
Electronics
$ Billion
United
General Electric 2008 Technologies 2008
Conventional Income Statement
1. conventional revenue
2. own production of R&D
3. own production of org. capital
4. total adjusted revenue
10K R&D ORG K 10K R&D ORG K 10K R&D ORG K
181 181
181
59 59
59
97 97
97
0
4
4
0
2
2
0
5
5
0
0
20
0
0
2
0
0
5
181 185
205
59 61
63
97 102 107
8. total current cost
Siemens
2008
123
123
123
49
49
49
90
90
90
9. operating surplus
10. depreciation already accounted
for
11. amortization of own R&D
58
62
82
9
11
13
7
12
17
11
0
11
2
11
2
1
0
1
1
1
1
4
0
4
8
4
8
12. amortization of own org. capital
13. adj. operating surplus
0
46
0
49
16
53
0
8
0
8
2
9
0
3
0
1
4
1
15. before-tax income
19. adjusted net income
20
17
22
20
26
24
7
5
8
5
8
6
4
7
1
5
2
5
1.73
1.99
6.45 8.05 5.11
5.90
20. earings per share
2.37 5.00 5.71
Electronics
$ Billion
Conv. Balance Sheet
1. current assets
2. plant and equipment
3. purchased intangibles
4. goodwill
5. other long term assets
6. total assets
7. total liabilities
8. equity
Adj. for own intangibles
9. R&D capital
10. organizational capital
11. assets adj. for own
intang.
12. equity adj. for own
intang.
13. Tobin's equity Qe
14. % MV value explained
General Electric
2008
United Technologies
2008
Siemens
2008
10K R&D ORG K 10K R&D ORG K 10K
R&D ORG K
503 503
503
24
24
24
54
54
54
79
79
79
6
6
6
14
14
14
15
15
15
3
3
3
7
7
7
82
82
82
15
15
15
20
20
20
119 119
119
7
7
7
23
23
23
798 798
798
56
56
56
119
119
119
684
114
684
114
684
114
41
16
41
16
41
16
84
34
84
34
84
34
0
0
25
0
25
72
0
0
12
0
12
8
0
0
41
0
41
16
798
822
894
56
68
76
119
160
175
114
138
210
16
28
36
34
76
91
2.42
0.41
1.99
0.50
1.31 3.88
0.76 0.26
2.23
0.45
1.73
0.58
2.38
0.42
1.08
0.92
0.90
1.12
Pharmaceuticals (1)
$ Billion
Conventional Income Statement
1. conventional revenue
2. own production of R&D
3. own production of org. capital
4. total adjusted revenue
J&J 2008
10K
+R&D +ORG K
64
64
64
0
11
11
0
0
1
64
75
76
Bayer 2008
10K
+R&D +ORG K
41
41
41
0
4
4
0
0
4
41
45
50
8. total current cost
45
45
45
33
33
33
9. operating surplus
19
30
31
8
12
16
3
0
3
5
3
5
3
0
3
4
3
4
12. amortization of own org. capital
13. adj. operating surplus
0
16
0
22
7
16
0
4
0
5
4
6
15. before-tax income
19. adjusted net income
17
13
23
19
17
13
3
2
3
2
4
3
4.62
6.63
4.50
2.78
3.19
4.25
10. depreciation already accounted for
11. amortization of own R&D
20. earings per share
Pharmaceuticals (1)
$ Billion
CONVENTIONAL BALANCE SHEET
1. current assets
2. plant and equipment
3. purchased intangibles
4. goodwill
5. other long term assets
6. total assets
10K
J&J 2008
+R&D
+ORG K
34
34
14
14
14
14
14
14
8
8
85
85
0
0
0
0
0
0
Bayer 2008
10K
+R&D
+ORG K
22
22
22
12
12
12
18
18
18
11
11
11
4
4
4
66
66
66
0
0
0
45
45
45
21
21
21
7. total liabilities
8. equity
34
14
14
14
8
85
0
42
43
ADJUSTMENTS FOR OWN
INTANGIBLES
9. R&D capital
10. organizational capital
11. assets adj. for own intang.
12. equity adj. for own intang.
0
0
85
43
64
0
149
64
64
32
181
96
0
0
66
21
25
0
91
45
25
16
107
61
4.28
0.23
2.82
0.35
1.89
0.53
2.44
0.41
1.11
0.90
0.82
1.22
18. Tobin's equity Qe
19. Percent MV value explained
Pharmaceuticals (2)
$ Billion
Conventional Income Statement
1. conventional revenue
2. own production of R&D
3. own production of org. capital
4. total adjusted revenue
10K
48
0
0
48
Pfizer
2008
R&D
48
16
0
64
8. total current cost
26
26
26
20
20
20
9. operating surplus
10. depreciation already
accounted for
11. amortization of own R&D
12. amortization of own org.
capital
13. adj. operating surplus
22
38
46
7
14
17
5
0
5
9
5
9
2
0
2
4
2
4
0
17
0
23
8
23
0
6
0
8
3
8
15. before-tax income
19. adjusted net income
10
8
16
14
16
14
6
5
9
8
9
8
1.20
2.14
2.15
2.29
3.40
3.47
20. earings per share
ORG K
48
16
8
72
10K
27
0
0
27
Novartis
2008
R&D
27
6
0
33
ORG K
27
6
3
36
Pharmaceuticals (2)
$billion
CONVENTIONAL BALANCE SHEET
1. current assets
2. plant and equipment
3. purchased intangibles
4. goodwill
5. other long term assets
6. total assets
7. total liabilities
8. equity
Pfizer 2008
10K
R&D
ORG K 10K
43
43
43
13
13
13
18
18
18
21
21
21
16
16
16
111
111
111
Norvatis 2008
R&D
ORG K
13
13
13
8
8
8
6
6
6
7
7
7
15
15
15
50
50
50
54
58
54
58
54
58
18
32
18
32
18
32
ADJUSTMENTS FOR OWN
INTANGIBLES
9. R&D capital
10. organizational capital
11. assets adj. for own intang.
12. equity adj. for own intang.
0
0
111
58
100
0
211
158
100
32
244
190
0
0
50
32
35
0
84
67
35
13
97
80
18. Tobin's equity Qe
19. Percent MV value explained
2.27
0.44
0.83
1.21
0.69
1.45
2.32
0.43
1.11
0.90
0.93
1.08
Pharmaceuticals (3)
$ Billion
Income Statements
1. conventional revenue
2. own production of R&D
3. own production of org. capital
4. total adjusted revenue
Forest 2008
10K
R&D ORG K
3.7
3.7
3.7
0.0
1.0
1.0
0.0
0.0
0.7
3.7
4.7
5.4
Stada 2008
10K
R&D ORG K
2.1
2.1
2.1
0.0
0.1
0.1
0.0
0.0
0.2
2.1
2.1
2.4
8. total current cost
2.5
2.5
2.5
1.7
1.7
1.7
9. operating surplus
1.2
2.2
2.8
0.3
0.4
0.6
10. depreciation already accounted for
11. amortization of own R&D
0.1
0.0
0.1
0.1
0.1
0.1
0.1
0.0
0.1
0.0
0.1
0.0
12. amortization of own org. capital
13. adj. operating surplus
0.0
1.1
0.0
1.9
0.6
2.0
0.0
0.2
0.0
0.3
0.1
0.4
15. before-tax income
19. adjusted net income
1.2
1.0
2.0
1.8
2.1
1.9
0.1
0.1
0.2
0.1
0.3
0.2
20. earings per share
3.08
5.73
5.96
1.74
2.44
4.07
Pharmaceuticals (3)
$ Billion
CONVENTIONAL BALANCE SHEET 10K
1. current assets
2. plant and equipment
3. purchased intangibles
4. goodwill
5. other long term assets
6. total assets
7. total liabilities
8. equity
ADJUSTMENTS FOR OWN
INTANGIBLES
9. R&D capital
10. organizational capital
Forest 2008
R&D
ORG K
2.9
2.9
0.4
0.4
0.5
0.5
0.0
0.0
0.7
0.7
4.5
4.5
0.0
0.0
0.8
0.8
3.7
3.7
0.0
0.0
10K
2.9
0.4
0.5
0.0
0.7
4.5
0.0
0.8
3.7
0.0
Stada 2008
R&D
ORG K
1.3
1.3
0.4
0.4
1.3
1.3
0.0
0.0
0.1
0.1
3.1
3.1
0.0
0.0
2.0
2.0
1.1
1.1
0.0
0.0
1.3
0.4
1.3
0.0
0.1
3.1
0.0
2.0
1.1
0.0
11. assets adj. for own intang.
12. equity adj. for own intang.
0.0
0.0
4.5
3.7
4.4
0.0
8.9
8.1
4.4
2.2
11.1
10.3
0.0
0.0
3.1
1.1
0.3
0.0
3.4
1.4
0.3
0.8
4.2
2.1
18. Tobin's equity Qe
19. Percent MV value explained
2.74
0.36
1.25
0.80
0.99
1.01
2.56
0.39
2.00
0.50
1.28
0.78
Software
Conventional Income Statement
1. conventional revenue
2. own production of R&D
3. own production of org. capital
4. total adjusted revenue
8. total current cost
Oracle 2008
10K
R&D ORG K
22
22
22
0
5
5
0
0
3
22
27
30
SAP 2008
10K
R&D ORG K
15
15
15
0
3
3
0
0
1
15
17
19
13
13
13
10
10
10
9. operating surplus
9
14
17
4
7
8
10. depreciation already accounted for
11. amortization of own R&D
1
0
1
2
1
2
1
0
1
1
1
1
12. amortization of own org. capital
13. adj. operating surplus
0
8
0
11
1
13
0
3
0
5
1
5
15. before-tax income
19. adjusted net income
8
6
11
9
12
10
3
2
5
4
5
4
1.08
1.69
1.96
1.95
3.11
3.47
20. earings per share
Software
$ Billion
CONVENTIONAL BALANCE SHEET
1. current assets
2. plant and equipment
3. purchased intangibles
4. goodwill
5. other long term assets
6. total assets
Oracle 2008
10K
+R&D
+ORG K
18
18
18
2
2
2
8
8
8
18
18
18
1
1
1
47
47
47
SAP 2008
+R&D
10K
+ORG K
7
2
1
6
1
17
7
2
1
6
1
17
7
2
1
6
1
17
7. total liabilities
8. equity
24
23
24
23
24
23
8
9
8
9
8
9
ADJUSTMENTS FOR OWN
INTANGIBLES
9. R&D capital
10. organizational capital
11. assets adj. for own intang.
12. equity adj. for own intang.
0
0
47
23
20
0
68
44
20
10
78
54
0
0
17
9
15
0
32
24
15
5
37
28
4.46
0.22
2.36
0.42
1.91
0.52
5.45
0.18
2.09
0.48
1.73
0.58
13. Tobin's equity Qe
14. Percent MV value explained
Chemicals
Conventinal Income Statement
1. conventional revenue
2. own production of R&D
3. own production of org. capital
4. total adjusted revenue
Dow 2008
Du Pont 2008
10K R&D ORG K 10K R&D ORG K
57.5 57.5 57.5 31.7 31.7 31.7
0.0
1.5
1.5
0.0
1.6
1.6
0.0
0.0
0.6
0.0
0.0
1.3
57.5 59.0 59.6 31.7 33.3 34.6
BASF 2008
10K R&D ORG K
78.3 78.3 78.3
0.0 2.0 2.0
0.0 0.0 2.2
78.3 80.3 82.4
8. total current cost
53.0
53.0
53.0
26.9
26.9
26.9
66.2 66.2 66.2
9. operating surplus
10. depreciation already accounted
for
11. amortization of own R&D
12. amortization of own org.
capital
13. adj. operating surplus
4.5
6.0
6.6
4.8
6.4
7.7
12.1 14.1 16.3
2.1
0.0
2.1
1.1
2.1
1.1
1.4
0.0
1.4
2.4
1.4
2.4
4.0
0.0
4.0
1.9
4.0
1.9
0.0
2.4
0.0
2.7
0.5
2.8
0.0
3.4
0.0
2.6
1.1
2.7
0.0
8.1
0.0
8.2
1.6
8.8
15. before-tax income
19. adjusted net income
1.3
0.6
1.7
0.9
1.7
1.0
2.4
2.0
1.6
1.2
1.7
1.4
7.5
3.7
7.6
3.8
8.2
4.3
20. earings per share
0.62
0.98
1.08
2.22
1.37
1.50
3.93 4.03 4.62
Chemicals
Dow 2008
R&D ORG K
16.1
16.1
14.3
14.3
0.5
0.5
3.4
3.4
11.2
11.2
45.5
45.5
Du Pont 2008
10K
R&D ORG K
15.3
15.3
15.3
11.2
11.2
11.2
2.7
2.7
2.7
2.1
2.1
2.1
4.9
4.9
4.9
36.2
36.2
36.2
10K
26.7
18.9
12.4
0.0
5.9
63.9
BASF 2008
R&D ORG K
26.7
26.7
18.9
18.9
12.4
12.4
0.0
0.0
5.9
5.9
63.9
63.9
Conv. Balance Sheet
1. current assets
2. plant and equipment
3. purchased intangibles
4. goodwill
5. other long term assets
6. total assets
10K
16.1
14.3
0.5
3.4
11.2
45.5
7. total liabilities
8. equity
32.0
13.5
32.0
13.5
32.0
13.5
29.1
7.1
29.1
7.1
29.1
7.1
40.4
23.5
40.4
23.5
40.4
23.5
Adjustments for own intan.
9. R&D capital
10. organizational capital
11. assets adj. for own intang.
12. equity adj. for own intang.
0.0
0.0
45.5
13.5
9.2
0.0
54.6
22.7
9.2
2.4
57.0
25.0
0.0
0.0
36.2
7.1
11.4
0.0
47.6
18.5
11.4
4.8
52.5
23.4
0.0
0.0
63.9
23.5
13.0
0.0
76.9
36.5
13.0
7.6
84.5
44.2
2.23
1.33
1.20
5.15
1.98
1.57
1.95
1.25
1.04
0.45
0.75
0.83
0.19
0.50
0.64
0.51
0.80
0.96
18. Tobin's equity Qe
19. Percent MV value
explained