John, as you noted earlier, changes in book value per share can be misleading unless one gets a better understanding of the nature of the assets. A sticky problem remains in trying to figure out the value of new patents or other proprietary material whose value can only be inferred from estimated future profits that incorporate the IP.
If company A acquires the IP of company B, at least a portion of company B's IP will be included in good will and will show up as such on the balance sheet. An investor can form an opinion of whether company A paid to much for company B's IP and act accordingly. I'm sure a lot of investors are questioning whether JDSU, LU, NT, and CSCO, for example, paid too much for some of their acquisitions, leading to questions about whether these companies can obtain a reasonable return on assets, or whether their shareholders can expect a reasonable return on investment.
The interesting part for investors is the unreported value of IP developed internally, since it doesn't show up on the balance sheet. My suggested measurement of change in book value per share is most useful in evaluating companies like QCOM, where most of the IP has been developed internally.
One other complication arises when the IP begins to lose value because it is being superceded by better products that don't require that IP. This condition may apply to a company like SanDisk, which started out making flash memories with internally developed proprietary technology but now faces increasing competition from other firms that produce similar products without having to incorporate SNDK patents. To adjust for this kind of situation, one must find a way of estimating the effects of reduced profit margins on future earnings.
Art |
