The Importance of Intangible Assets in Financial Markets

André Gonçalves de Freitas

Hatched by André Gonçalves de Freitas

May 26, 2024

3 min read


The Importance of Intangible Assets in Financial Markets

In the world of finance, intangible assets play a crucial role in determining the value and profitability of companies. These assets, which cannot be physically touched or seen, hold immense value and have a significant impact on a company's financial standing. Understanding the concept of intangible assets and their recognition in the financial markets is essential for investors, analysts, and businesses alike.

In Brazil, the B3 stock exchange is a prominent player in the financial market. The B3 recognizes the significance of intangible assets and has specific guidelines regarding their recognition and valuation. According to B3, no intangible asset resulting from research (or the research phase of an internal project) should be recognized. Instead, expenses related to research should be recognized as expenses when incurred. This approach ensures that companies accurately reflect their financial position without overvaluing intangible assets in the early stages of development.

Activities related to research include seeking new knowledge, evaluating and selecting applications of research results, and exploring alternatives for materials, devices, products, processes, systems, or services. It is crucial for companies to invest in research activities to stay competitive and innovate in their respective industries. However, recognizing the expenses incurred during this phase allows for a more accurate representation of a company's financial health.

On the other hand, the B3 recognizes the value of intangible assets resulting from development (or the development phase of an internal project). However, certain criteria must be met for their recognition. These criteria include technical feasibility to complete the intangible asset, the intention to use or sell the asset, the ability to derive economic benefits from the asset, the existence of a market for the asset or its products, the availability of resources for development, and the ability to reliably measure the costs incurred during development.

Activities related to development include designing and testing prototypes, creating tools and molds involving new technology, operating pilot factories, and testing chosen alternatives for materials, devices, products, processes, systems, or services. These activities demonstrate a more advanced stage of development compared to research and indicate the potential economic benefits that can be derived from the intangible asset.

Understanding the guidelines set by the B3 and recognizing the importance of intangible assets can provide valuable insights for investors and analysts. By considering a company's research and development activities, market potential, and available resources, stakeholders can make more informed decisions and assess the true value of a company.

In conclusion, intangible assets play a crucial role in the financial markets, and their recognition and valuation are essential for accurate financial reporting. The B3 recognizes the importance of research and development activities and has specific guidelines for the recognition of intangible assets resulting from these phases. By understanding these guidelines and evaluating a company's intangible assets, investors can make informed decisions and gain a deeper understanding of a company's true value.

Actionable Advice:

  • 1. Conduct thorough research on a company's research and development activities before making investment decisions. This will provide insights into their potential for innovation and future growth.
  • 2. Consider the market potential and available resources for the development of intangible assets. A strong market demand and sufficient resources indicate the potential for economic benefits.
  • 3. Always evaluate a company's financial reports, keeping in mind the recognition and valuation of intangible assets. This will provide a more accurate understanding of a company's financial health and potential for long-term success.

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