We have all heard about the term intangible asset, but let’s be honest here; there are quite a few people in here that exactly know what they mean. Even if they do, then they don’t have the complete concept in mind. So, here we are going to have a small discussion on this topic.
An intangible asset is something that will not have a physical shape or size in nature. Brand recognition, brand, goodwill, and intellectual property of the people, which include patents, copyrights, trademarks, and other things are often categorized under the intangible assets.
These are just the opposite of tangible assets, and these include the things which have a physical shape such as equipment, inventory, and vehicles.
However, the financial assets such as bonds, stocks, and other things which have a certain kind of value from the claims in the contract are also grouped under tangible assets.
So, let us start with the discussion about intangible assets first.
Introduction of Intangible Assets
To have a detailed idea about the concept and their use in the business world, it is important to know what they mean in the first place. The intangible asset here can be classified correctly as the definite or indefinite intangible assets.
The brand name of the company is supposed to be an intangible asset, which is indefinite because it will stay with this particular company until the date of its proper operation.
However, when it comes to the example of the definite intangible asset in here, then it would be some sort of legal attachment or agreement that one company makes according to the patent.
There will be further plans for the extending of the agreement. So, there is no doubt that the agreement will have a particular life which is limited and hence can be kept under the definite asset.
We have established the fact by now that intangible assets will have no particular physical value like the factory equipment or the land that someone buys.
But that doesn’t mean it is not valuable to the company that owns the intangible asset.
It can be said without a doubt that the intangible asset can decide the success and failure of the company in the long run. So, there is no doubt that this intangible asset that we are talking about here is very important for the people to understand.
Intangible Vs. Tangible Assets
Intangible assets are generally non-physical assets that businesses use on a long term basis while on the other hand; Tangible assets are physical and measurable.
Some of the intangible assets are-
- A company’s brand
Some of the Tangible Assets are-
- Securities like stocks, bonds, and cash
- Inventory, etc.
Example of Intangible Assets
Let us provide you with an example so that you can understand what we are trying to say here. We will take the company of Coca Cola. The company will not necessarily be that famous if the brand recognition of the company wasn’t able to provide it with the money that it has now.
Brand recognition is not a particular asset, which is physical, and it can certainly not be touched or seen by the people. However, the impact that it has on the business when it comes to the generation of the sales is surely commendable, and hence people seem to give so much importance to it in the first place.
It is often depended on the business type to decide which are the intangible assets which should be available to the people and these may include the domain names, licensing agreements, performance events, computer software, contracts, manuscripts, blueprints and some other different types of intangible assets that you probably didn’t know about.
These intangible assets surely help in adding some sort of value to the future of a particular company and then can be a bit more valuable than the tangible assets that this company might have.
One of the most common examples here is the brand equity of a particular company. This is considered to be a proper intangible asset because it is not something that has a physical value, but then it is completely important to determine the perception of the company or the brand that is present.
Let us understand the concept of Intangible Assets through Brand Equity here-
Understanding Brand Equity as Intangible Asset
The brand equity of a particular company will be contributing to the valuation of the asset that it has as a whole, and that is one of the main reasons why people tend to put so much importance to the brand value for sure.
Now when we are talking about brand equity, let us get into some of the details as well. We all know about positive brand equity, but do you know how it occurs in the first place?
Well, to be honest, the positive brand equity of a company will occur when there are some favorable associations for the particular product or the company which can be a contributing factor for the company’s equity.
This happens when the clients and customers are all willing to pay the price and do more to buy the product or the service that the company is trying to provide.
Similarly, negative brand equity might occur when the customers and clients are not willing to pay some extra amount of money for the name of the brand and the particular version of the product which is being offered by the brand.
Since the brand equity is considered to be an intangible asset, just like the goodwill and the intellectual property of a company, it will not be accounted for these financial statements of the company.
However, that doesn’t mean these don’t have a value when it comes to company success and growth. When you invest more and more into the betterment of a product and create a particular marketing plan, it will have a positive impact on this brand equity, and this will lead to better visibility of the brand for sure.
Now the time has come to talk about intangible assets related to specific industries-
Industries and their Intangible Assets
Some of the different industries and their intangible assets are-
#1 Marketing Industry
- Noncompetition agreements
- Newspaper mastheads
- Order backlog
- Customer lists
- Customer-related intangible assets
- Customer relationships
#2 Artistic Industry
- Musical works
- Literary works
- Motion pictures and television programs
- Performance events
#3 Contract-Based Jobs
- Franchise agreements
- Service contracts
- Employment contracts
- Use rights (such as drilling rights or water rights)
- Lease agreements
- Licensing agreements
- Broadcast rights
#4. Technology Industry
- Patented technology
- Trade secrets (such as secret formulas and recipes)
- Computer software
#5. Healthcare Industry
- Brand Names
- Research and Development of Medicines
- Methods of Care
- Valuable Employees
#6. Entertainment and Media
- Publishing Rights
- Talent Personnel
#7. Consumer Products and Service
- Patents of formulas and recipes
- Brand Name Recognition
#8. Automobile Industry
- Patented Technologies
- Brand Names
Wrapping it up!
There is a certain difference between tangible and intangible assets, and we have managed to clear that part out for you.
While these intangible assets don’t have a particular physical value, these are very important for the organization and the company needs to invest in these to have the best results.
So, paying attention to the intangible assets of your business is very important for ensuring the success of your business.
What are the intangible assets of your business? Share with us in the comments below.