What’s Missing From Financial Statements and Balance Sheets?

Achieving operational familiarity with a business’s intangible assets can lead to improvements in its economic and competitive advantage health, resilience, and sustainability…https://kpstrat.com/wp-admin/post.php?post=361

An initial step is recognizing that conventionally structured financial statements and balance sheets…routinely omit intangibles. Thus, using either as primary reference points for management teams, boards, and investors to acquire a complete portrait showing the state and soundness of their businesses intangible assets, i.e., intellectual, structural, and relationship capital will be incomplete, at best.  https://kpstrat.com/wp-admin/post.php?post=3448

Being consistently positioned to recognize and assess various contributory roles and value of every business’s intangible assets…is especially relevant to business operability and sustainability, as well as entire country’s economy, insofar as both are, irreversibly dependent on consistent influx of intangible assets to serve as drivers and underliers.

Equally relevant, is this economic fact…

  • 80+% of most company’s value, sources of revenue, competitiveness, and ‘building blocks’ to growth, sustainability, and profitability lie in – evolve directly from intangible assets. https://kpstrat.com/wp-admin/post.php?post=4825

Management teams’, c-suites’, and boards’ continued reliance on conventionally framed financial statements and balance sheets…absent reference to – assessment of key intangible assets, variously contributes to sustaining business leaders’ skepticism, dismissiveness, and even apprehension regarding the…

  • economic fact that the overwhelmingly dominant sources and drivers of most company’s value, revenue, and competitiveness today, evolve directly from assets that are seldom, if ever, fully reported on financial statements other than in the misleading context of the all-inclusive ‘goodwill’!

True enough, conventional financial statements and balance sheets…describe whether-or-not financial targets, etc., are being achieved. No debate here, that is essential information. However, when such unquestionably key data is conveyed in very narrow contexts, convention maintains its relevance.

Again, it should not be overlooked that neither document…conveys the whole story or paints a sufficient portrait of a businesses value and competitiveness, or its potential, etc., should the intangibles it acquires, develops, and ultimately are embedded in its products and/or services are ignored, overlooked, or unattended.

The prudence of – necessity to strike a better balance…to achieve a coordinated oversight and management of both financials and intangibles, will, to be sure, produce relevant insights to businesses economies which are increasingly dominated by consistent infusions and re-infusions of intellectual, structural, and relationship capital to survive and prosper.  https://kpstrat.com/wp-admin/post.php?post=1380

Of course, in fairness, conventional financial reports – balance sheets were not designed nor intended to…capture (describe) the many and various qualitative aspects, vital signs, and indicators that we now know are directly related to businesses success, i.e., those emerging from – embedded in company’s intangible assets.

Readers are discouraged from assuming…tracking, monitoring, mapping, assessing, and safeguarding the performance of a company’s intangible assets are time-resource luxuries found only in large Fortune ranked companies. Instead, each of the aforementioned, constitute imperatives at the fiduciary level.

Of course, there are a number of factors in play today that should be influencing…management teams, c-suites, and boards alike, to pay more attention to monitoring intangible asset’s contributory role and performance ala value, exploitation, monetization, and revenues generated, etc., irrespective of company size, sector, or maturity.  https://kpstrat.com/wp-admin/post.php?post=9076

Those factors include, among others…

  • global competition which has become more aggressive, predatorial, and, with increasing frequency, driven by country specific (political) vagaries as well as geopolitical strategic planning.
  • growing inter-connectivity of global trade, i.e., company’s intangible assets, convergence of value-supply chains, and stability and sustainability.
  • heightened awareness – sensitivity to the array of events, circumstances, and behaviors affecting a company’s reputation (image, goodwill).
  • necessity – consistency for accelerated new product – innovation launch times.
  • boundary-less speed which intangible assets can emerge, develop, be acquired, and disseminated.
  • vagaries of government regulatory emphasis on reporting, accounting for, and measuring the contributory role and value (performance) of intangible assets.

Too, it’s becoming common practice to…include, as a measure of management teams and c-suites proficiency by how well they are…

  • capturing, managing, exploiting, and converting (monetizing) their company’s intangible assets to serve as enablers – facilitators to (company) value, revenues, competitiveness, and sustainability.
  • building new and strengthening existing (sector) competitive advantages by developing and deploying intellectual, structural, and relationship capital, from which efficiencies and scalability emerge to favorably impact the company’s value – supply chain.

Michael D. Moberly November 15, 2018 St. Louis [email protected] ‘The Business Intangible Asset Blog’ https://kpstrat.com/blog since May 2006 ‘where attention span, business realities, and solutions converge!

Readers are invited to examine other blog posts, papers, and books I have published at https://kpstrat.com/blog/papers

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