KnowKapital

How much is a company worth?

The application of a simple equation or methodology is not considered enough for the professionals of this area. We are facing an unresolved problem.

The Technique and Research Commission of Union des Experts Comptables Européens (UEC) while defining the proceedings that accountants must follow in the evaluation of an on going company, it presents two ideas that illustrate the fixation difficulties of measurement models even in tangible assets: "… the attributed value of a company is subjective…" and ahead "… a conceptually correct evaluation of company represents the actual value o liquid flows of treasury that a buyer can have the expectation to receive" (The Technique and Research Commission of  UEC. Proceedings that accountants must follow in the evaluation of an ongoing enterprise, 1985.  Quoted in Manual dos Revisores Oficiais de Contas, 4ª edition, 2000).

If we take the market value of a company calculated by the product of the number of shares times their price, in a certain moment, we have an approximation to the real value of the company. It is said that it is a fair approximation because it results from the meeting of the wills in the market. The justification of the intangible part of a company value market is there about the central goal of the work presented in this site (www.knowkapital.com).

In the context of this work devoted to the characterization of intangible assets and to the search oh their measurement models, we separated the market value in two parts: one tangible, and other intangible, measured as it is shown ahead:

• The tangible part (financial capital) can be obtained taking the Net Assets of the company and subtract their Liabilities. These values can be found in the annual balance sheet of the enterprise.
• The intangible part (knowledge capital or intellectual capital) can result from multiple sources.

The diagram bellow illustrates this idea:

The measurement of knowledge capital (intangible part of the enterprise value) is still a puzzle, but there is multiple proposals of recent authors to fix this problem.

In the understanding we’re following, the mathematical aspect of the ideal global model, including every announced sources, would be close to the following:

KC=a(potential)+b(structure)+c(environment)

Grouping assets in potential, structure and environment aims to join the components of a more equal nature. The knowledge capital of the human assets is a potential source different from the rest that can be treated as traces of the first. The coefficients of efficiency a, b and c will aloud to materialize this distinction.

The components of each group are the following:

• Potential or human – the components related to potential of knowledge capital include the human assets (HA) which are the real source, the live potential of knowledge and intellectual property (IP) which is a visible flag of that potential;
• Structural or traces – traces are left by people as they make choices and determine operational procedures. The components associated to traces of potential knowledge refer to the processes of knowledge management (KM), structure (S), ways and processes of relationship with the market of resource and products (Rmr and Rmp). The knowledge management includes concrete initiatives in generation and diffusion of knowledge field adopted in the company, including enablers in creation, diffusion and application of knowledge.
• Environment  or market – the components associated to the environment take care of  quality of the markets (MR and MP) where the company operates, of partnerships and alliances (PA) that is established to benefit from the best of the market in all of his productive cycle towards achieving theirs goals. Something like: "tell me who are your friends and I will tell you who you are";

Considering the components announced for each group, the aspect of the model would be the following:

CK=a(HA+IP)+b(KM+S+Rmr+Rmp)+c(PA+MR+MP)

The separation of the nine components of the model is due to the different nature of each, assuming that the forms of evaluation will also have different approaches.

The evaluation of the model components can not be achieved by companies traditional IT, it should rely on the audit methodologies applied by individuals deeply knowledgeable of the business in question and the market where it occurs.