Home > Uncategorized > Intangible Assets. Are they worthless?

Intangible Assets. Are they worthless?

Intangible assets are frequently hard to define but does that mean that their value should be discounted entirely? It would appear that many credit agencies are still determined to give a nil value to this frequent balance sheet item. 

I am in the middle of a discussion with a major credit agency regarding this very issue. I will keep it simple but the fundamentals of the business we are looking at are as follows

Net worth                  (9m)

Shareholders funds   11m

Intangible assets        20m

The credit insurer is looking no further than the net worth and refusing credit. Fair enough some might say, but the “intangibles” were clearly paid for by directors loans which are equivalent value on the other side of the balance sheet

So the credit insurers are suggesting that they paid £20m for something of no value? A total £20m liability?

Can we believe that?

Of course not. They bought the most significant “intangible” of all. A brand. And as it happens, since purchase, this is producing net profit of over £2m. The bought at 10 years multiple profits. High but not extraordinary

But thats not the point. The shoddy and lazy insurer is not prepared to explain or look beyond the very frontline figures. Despite clearly presenting the case, there has been no response

If there is a lesson to be learnt here it is that even the supposedly most experienced credit assessors can get it wrong or simply not understand what they are looking at.

Naturally this is where I like to step in

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