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April 12, 2022

Intangibles and Earnings

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April 12, 2022

Intangibles and Earnings


Consilient Observer

Intangibles and Earnings

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April 12, 2022

 
 

Improving the Usefulness of Financial Statements

  • The shift from tangible to intangible investments has complicated the ability to interpret financial statements.
  • One solution is to record intangible investments on the balance sheet and then amortize them over their useful lives.
  • We apply this approach to two companies in different industries and the S&P 500 index.
  • This results in a huge operating profit margin expansion for the company that is intangible intensive and an insignificant change for the one that is tangible intensive. We estimate that earnings for the S&P 500 would be about 12 percent higher.
  • This analysis suggests that one should compare earnings or valuation multiples over time with great caution.
 
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Counterpoint Global consists of 56 people, including 32 investors, four disruptive change researchers, two consilient researchers and two sustainability researchers. Counterpoint Global’s culture fosters collaboration, creativity, continued development, and differentiated thinking.
 
 

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