Microsoft overtakes Apple to become World’s Most Intangible Company

Microsoft overtakes Apple to become World’s Most Intangible Company

Each year, Brand Finance publishes the Brand Finance Global Intangible Finance Tracker (GIFTTM) report, which ranks the world's largest firms according to their intangible asset value.

Microsoft (US$1.90 trillion) is this year's number one firm in terms of total estimated intangible value, surpassing Apple (US$1.87 trillion), Saudi Aramco (US$1.64 trillion), and Amazon (US$1.47 trillion). Microsoft Teams has become ingrained in the daily operations of multinational organisations, demonstrating once again the value of Microsoft's ability to innovate and expand. Microsoft is making significant investments in its business suite solutions. Although Apple is worth around $200 billion more than Microsoft, Microsoft is thought to have higher intangible value due to its portfolio of brands and commercial operations.

Intangible assets are non-monetary, identifiable assets that lack physical substance. Three basic forms of intangible assets exist: rights (which include leases, agreements, and contracts), relationships (which include a skilled staff), and intellectual property (including brands, patents, copyrights).

During the COVID-19 epidemic, intangible assets grew in value.

Global intangible asset value has grown at a greater rate than typical over the last year, surpassing pre-pandemic levels by nearly a quarter, having increased 23 percent from $61 trillion in 2019. The COVID-19 epidemic has underscored the critical nature of people, innovation, reputation, and brand for organisations worldwide. Intangible assets have unambiguously become a boardroom priority.

Increases during the pandemic were mostly due to the rise of the world's largest organisations, which remained robust to investor anxiety because to their size and focus on technologies on which we relied during lockdowns. China and the United States have spurred growth this year, with some industries expected to recover from the downturn in 2020.

“During times of crisis, brands – particularly the most valuable and strongest in their categories and marketplaces – become a safe haven for capital,” stated David Haigh, Chairman & CEO, Brand Finance Plc. As with gold or fine art during previous economic downturns, the global economy increasingly looks to well-managed, inventive, and recognised brands in times of need. There is no better illustration of why brands are important than the role they have already played and will continue to play in the post-COVID recovery.”

In 25 years, the global intangible value increases by more than 1000%

When Brand Finance was founded 25 years ago, worldwide intangible assets were projected to be valued only $6 trillion, less than a tenth of their current value. Global intangible assets are estimated to be worth more than $74 trillion as of September 2021. This represents a 1145 percent increase over 25 years – or nearly 11% each year.

Annie Brown, Associate at Brand Finance and author of the GIFTTM study, stated, "This is a watershed moment in intangible asset financial reporting." In the last 25 years, the total estimated intangible value has increased by more than 1000 percent. By 2050, the worldwide intangible value may exceed $1 quadrillion (that is $1,000,000,000,000,000). As investors struggle to balance many challenges such as climate change and ESG in the next years, it is critical that the data necessary to comprehend these enormous quantities is readily available.”

Intangible assets generated internally should be recognised in financial statements.

The bulk of intangible assets are not recognised due to financial reporting regulations that prohibit the disclosure of internally generated intangible assets such as brands on a company's balance sheet.

“Investors should not be deprived of this vital information,” remarked David Haigh, Chairman & CEO, Brand Finance Plc. As Apple demonstrated, intangible assets like as strong, valuable brands and creative technologies can act as differentiators, propelling a $2 billion firm to $2 trillion in 25 years. This information vacuum for investors is one of the reasons why Brand Finance conducts an annual GIFTTM study to determine the level of "undisclosed intangible value."

To properly assist investors and give pertinent information, we believe that management should be permitted and compelled to:

Identify the critical intangible assets of the entire business – both those generated internally and those bought.

Provide an opinion on the intangible assets described in the financial statements' notes.

Provide a judgement on the business's total value at the reporting date, in order to assist investors in determining if their cash is being deployed properly.

Kevin Prall, Technical Director, International Valuation Standards Council (IVSC), stated, "Despite their importance to capital markets, only a small percentage of intangible assets are recognised on balance sheets, often through acquisition through a third-party transaction." The epidemic has increased the divide between market and book values in sectors that rely heavily on branding, technology, and human capital to create value. The IVSC is committed to assisting Brand Finance, as well as all others, in making progress on this vital issue.”