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What is Intellectual Capital?

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  • Written By: Luke Arthur
  • Edited By: Heather Bailey
  • Last Modified Date: 03 December 2016
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Intellectual capital is a term used to describe the portion of the value of a company that does not include physical property. One of the most important aspects of intellectual capital is the employees of a business. The employees cannot have a dollar figure placed on them, but they do hold value for a company. Intellectual capital also includes certain information that is vital to the success of a business.

When trying to come up with the value of a business, one of the most difficult things to put a price on is the intellectual capital. Accountants can easily put a value on physical assets of the company or determine the market capitalization. When it comes to trying to put a dollar figure on how much intellectual capital is worth, it becomes much more difficult.

One of the most critical parts of this concept involves the value of the ideas that are in the heads of the employees. Many companies have succeeded because of the ideas and concepts their employees have come up with. If these employees were removed from the companies, the companies may not succeed so easily. While it may be difficult to put a value on the ideas that are generated by employees, they definitely provide value to the company. This is especially true when talking about upper-level executives responsible for the core principles of an organization.

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Another aspect of intellectual capital deals with private information held by the company. For example, many companies have trade secrets that are extremely valuable to their success. Without these trade secrets, the business may not be better than any other competitor in the industry. These secrets may be difficult to put a specific value on, but they do pay big dividends in the success of companies.

Brand awareness is another aspect of intellectual capital. Brand awareness deals with the concept of how readily consumers can recognize a brand name. It does not necessarily mean that individuals purchase brand names, but they are aware of it. Brand awareness is something that is extremely valuable to businesses and is worth a great deal of money. Once consumers are aware of a brand name, it may be only a matter of time before they try it out.

When selling a business, it is important to try to determine a value for intellectual capital. The owner of the business should be compensated for this part of the company. While it may be difficult to determine a true value, it is important to get as close as possible.

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