Intellectual Capital Final1

8/14/2019 Intellectual Capital Final1

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INT ELLECTUALCAPIT AL

Purvi Agarwal 02

Vivek M. Desai 13

Vikas Lalwani 44


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FUNDAMENTAL FORMS OF

CAPITAL

FINANCIAL CAPITAL

Funds which are required to buy what isneeded to make products or provide

services.


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INTELLECTUAL CAPITAL

Intellectual capital is knowledge

That can be exploitedFor some money-making orother useful purposeIt combines the idea of the intellect or brain-power with the economic concept of capital.


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INTELLECTUAL CAPITAL ..

Intellectual Capital is one way of defininga companys intangible assets and

resources.

Knowledge-based, intangible assets are

sometimes referred to as intellectualcapital.


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INTANGIBLE ASSETS

Defined as

Identifiable non-monetaryassets that cannot be seen,

touched or physically measured,

which are created through time and/oreffort and that are identifiable as aseparate asset.


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ELEMENTS OF

INTELLECTUAL CAPITALCustomer capital: Enhances the fitness of the

organization for succeeding in the market place

like customer loyalty.Human capital: Knowledge and competences

residing with the company's employees.

Structural capital: Collective know-how,beyond the capabilities of individual employees.E.g. information systems; policies; intellectualproperty.


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INTELLECTUAL CAPITAL CAN

INCLUDE THESE INTANGIBLEASSETS

The skills and knowledge that a company has

developed over a period of Time. Knowledge of Individual Employees or groups

critical to Companys success.

Aggregation of Documents aboutprocesses,customers,research,results

Other information of value to the competitorwhich is not common knowledge.


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MET HOD S FOR MEASURINGINT ELLECTUAL CAP ITAL

Return on Assets ( ROA ) : It uses average pretax earnings of the company for three to five years. These average earnings are then divided by average tangible assets of the company over a period of

time. The resulting ROA is compared with the Companys industry average to calculate the difference

DIFFERENCE

+ ve 0 or - ve

Excess of intellectual capital Company intellectual capital is

over industry assumed to be Zero


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Formula :

Value of intellectual of a company

AEBTt5 IEBTt5

ATAt5 IATAt5

Where , AEBT = Average earnings of the company before tax for five years.

ATA = Average Tangible Assets of the company for five years.

IEBT = Industrys earnings before tax for five years.

IATA = Industrys Average Tangible Assets for five years


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IllustrationOn the basis of the statistical data of Asian Paints Ltd , we have tried to calculate intellectual capital.

Year 1995-96 1996-97 1997-98 1998-99 1999-00

Earning before tax 8035 8538 10050 10088 14309

Tangible Assets 11979 17017 23146 30111 32934

Average earnings before tax :- 23037

Average Tangible assets :- 10204

Therefore, AEBTt5 10204 .44ATAt5 23037

Industry Average:- .21

Valueof intellectual is .44 - .21 = .23


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MARKETCAPITALIZATION

METHOD The excess of companys market capitalization over its

stockholders equity is its intellectual capital. It is given bythe formula :

Market Capitalization =

Average market value of shares x no. of shares subscribed - Paid up capital

Letus measure it with an example,Average market value of shares of ABC Ltd Rs. 100

No. of shares subscribed 1000

Paid up capital Rs.50,000


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Therefore Value of intellectual capital

= Rs.100 x 10000 50,000

= Rs.50,000


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TOBINS Q The ratio was developed by James Tobin (Tobin 1969). It

is calculated by dividing the market value of a company byits book value.

Market Value of companyTobins q = ________________________

Book Value of a company

Suppose;Market value per share of company XYZ Ltd. is 200

Book Value per share of company XYZ Ltd is 75

No. of shares are 10 lakh


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Tobins q = 200 x 10 lakh = 2.67 lakh

75 x 10 lakh

Hence, XYZ has excess intellectualcapital of Rs. 2.67 lakh


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SKANDIA NAVIGATOR

HISTORY Skandia is an international insurance

financial services company based inSweden in the 1990s

Realized the importance of intangible assetsand intellectual capital

Skandia wanted a way to measure itsintellectual capital

Skandia developed the Intellectual Capital

Navigatormanagement model


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SKANDIA NAVIGATOR

(Intangibles Valuation) A collection of

critical

measurements.

Comprises of aHolistic view of

performance & goalachievement.


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Financial focus :

-Captures the financial outcome of our activities.Customer focus :

-Gives an indication on how well the organization fills the needs of its

customers via services and products.Process focus:

-Captures the actual processes of creating services and products ourcustomers desire.

Renewal and development Focus:-Aims at reassuring the organizations long-term renewal and in part its

sustainability.Human focus: (Heart of the Organization)

-Process of Knowledge creation is visualized in this area.

FOCUS AREAS


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THE STORY

OFMAHABHARATA


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LOOK AT INFOSYS.....

Our core corporate assets walk out every

evening. It is our duty to make sure that theseassets return the next morning, mentally andphysically enthusiastic and energetic.

-Narayana Murthy

`Value of human resources' was Rupees 1,04,850crores for its employees


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LETS THINK, SHALL WE.

What is more Important for an Organization?

FINANCIAL CAPITAL

ORINTELLECTUAL CAPITAL


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THINK AGAIN...

Now then, if I put $40,000.00 of Financial Capital in aroom and left it there for a year when I came back Iwould still have $40,000.00; no more, no less. Except it

would have less value due to inflation. However, if I gave someone the same $40,000.00 who

had an idea and the proper Intellectual Capital to makesomething of it when I came back in a year that money

could easily double or triple or more. The point? Money doesnt make more money by itself. It

requires human intervention.


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TAKE AN EXAMPLE...

If you have a dollar and I have a dollar and we each giveone another our dollar what will each of us have? Weeach still have 1 dollar.

But, if you have an idea and I have an idea and we eachgive one another our idea what will each of us have? Weeach will have two ideas!


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CONCLUSIONWe just have to remember that in todaysworld it is Mind over Money that will rule

the day.

The point? Money doesnt make more

money by itself. It requires humanintervention.


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