Unlike tangible assets, which have a physical form and can usually have a price tag, invisible or intangible assets are sometimes referred to as resources of economic value that cannot be seen or touched.
These assets do not have a physical presence, and in some cases, they do not even exist on paper. But they are a primary part of a company’s worth and provide financial value to its holders.
What are Intangible Assets?
Patents, copyrights, trademarks, brand recognition, goodwill, and intellectual property all come under the category of invisible assets. These assets generally do not appear on the financial statements of their owners or companies, as they do not have a price associated with them.
They appear on the balance sheet only if they contain a useful lifespan or an identifiable value. Suppose the identifiable value of the invisible asset is missing. In that case, the assets will pop up on the company’s balance sheet as long-term assets. Companies value them at their purchase price and schedule of amortization.
How Invisible Assets Help a Company
Intangible or invisible assets help a company raise productivity, giving it a distinct advantage over its opponents or competition by making it difficult for the competitors to copy, mimic, or duplicate the patents or brands. It protects the asset holders’ market shares and profitability. It is a tool that acts as an effective deterrent against competition that the company faces from other firms. Invisible assets are essential to companies as they grow faster and more rapidly than tangible assets. That is the reason companies are investing more and more in invisible assets. These investments offer a higher financial return on investments the company has made.
However, since invisible assets are challenging to sell or exchange and hard to put an exact value on them, they became illiquid. It becomes a daunting task to convince banks to accept invisible assets as collateral for loans as the lender cannot actually seize intangible assets if the company is unable to repay the loan. A business or a company can lose its invisible assets if it becomes bankrupt or fails. The value of the invisible assets can decrease if the holder is not careful with the same.
Types of Intangible Assets
There are two types of intangible assets. Those assets that last for a limited time, like goodwill, copyrights, and patents, are limited-life intangible assets. Unlimited-life intangible assets are the ones that do not have a definite life span. Trademarks and brands are examples of unlimited-life intangible assets. One can’t predict how long a particular trademark will last against a patent with a legal date of expiry.
They indeed have an incredible value, and the process of determining their exact value can be a real challenge, but it is also true that intangible/invisible assets are crucial in ensuring the growth and success of a business or a company.