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September 09, 2007

Comments

Victor Cook, Jr., New Orleans, Louisiana

Jonathan,

Thanks for sharing your thoughts on brand value vs book value. I already took your suggestion into account in my latest post of "Brand Value and Market Capitalization." But one thing I didn't mention is the difference between your finding that Interbrand Values represented around 25% of the market cap of the companies in the aggregate. The range was the same, from 2% to 75%, with luxury goods at the top, but oil companies were no longer included.

What accounts for the difference between the 25% you found and the 17% in the 2006 data? Part of it could be the fact that I included only 49 of the 100 top brands. But looking over the list those 49 were spread evenly among the ranks from # 1 (KO) to # 100 (HTZ). So the distribution probably is not a factor.

Is the 8% difference statically significant? Certainly not, since the standard deviation in my sample was 17%. Your census result would have had a smaller sigma, even given the same range, since the sample was twice a large. But even if sigma were half, the 8% wouldn't be statistically significant. The dollar amounts, however, would be very significant from a practical point of view.

What are you thoughts on this?

~V

Jonathan Knowles

Hi Victor
I think the whole discipline of relating brand value to some financial metric is laudable - but I think you have chosen the wrong metric. As you know, the accounting regulations only allow for ACQUIRED intangibles to be shown on the balance sheet. The companies with the most disclosed intangibles are therefore those that have done the most - or the largest - acquisitions involving a significant amount of goodwill. It is no surprise that the acquisitive Citi has a low ratio and the non-acquisitive Harley has a stratospherically high one.
Comparing overall brand value to disclosed intangibles is therefore a false comparison (at the end of 2005, the 5,000 largest public companies in the world had an aggregate enterprise value of $36 trillion of which $14 trillion was tangible net assets but only $4 trillion was disclosed intangibles). The more meaningful question is to analyze what proportion of overall value (and of intangible value) is represented by brands.
I am delighted that this is what you are working on now! When I last looked at this, I think I found that the Interbrand brand values represented around 25% of the market capitalization of the companies in aggregate but ranged from a low of 2% for the oil majors to a high of over 70% for the luxury goods companies.

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