In situations where we advise on acquisitions or disposals in sectors such as software, Internet or hybrid seeds, a significant proportion of the value is for the "intellectual capital" of the company. However, we rarely segregate this value from the value of the company as a whole. The moot question is whether such a separation would reflect the commercial reality in the sense that a significant part of "intellectual capital" is closely intertwined with the company's specific internal and external dynamics. However, in some cases intellectual capital is clearly identifiable and hence could be valued separately. Examples include copyrights, patents or other intellectual property rights. At PwC, we do value such specific types of intellectual capital both for management information as well as for deals.

What about the market price of the stock? Is it an important indicator of the level of intellectual capital?
The excess of market capitalisation over the book value is a pointer towards net intangible assets. However, all of this may not be intellectual capital. For example, some of the value may be due to assets such as highly advantageous mining leases or block development rights in case of an oil company.

The value of intellectual capital may be higher than this difference. For, possibly different concerns may be driving the overall valuations down. Take the example of a company, which has very valuable patents but may be facing bankruptcy. In such cases, its valuation in the stockmarket may be low due to bankruptcy concerns and not because it has a low intellectual capital.

Finally, a word of caution while using market prices. In some cases, it may be necessary to normalise the market prices to account for market specific factors such as overall sentiment and liquidity. Also in some cases, the market expectations may be out of sync with the company's own future plans. This is sometimes observed in industries like pharma.

Do you think it is important to show intangible values in balance sheets?
Currently, a number of companies are already disclosing the estimated values of their intangible assets in the management discussion section of their annual reports. However, in a technical sense this is not "putting it on the balance sheet".

It is debatable whether it would be a good practice to put these assets on the balance sheet. Anyway, currently only acquired intangible assets can be shown on the balance sheet, while self-generated ones cannot.

From a practical deal perspective, it does not matter whether this is specifically disclosed as we do account for the value of these assets in our valuations for M&A deals. For example, in the sale of Glaxo's food products division to Heinz, a major proportion of the value could be attributed to the brands and the marketing and distribution network, which was recognised and paid for.

Do you think there will be more monopolies than now? Will wealth be concentrated in a few companies?
I think the natural tendency of business is to maximise value in the long-term. In classical economics, the monopolist has full control over price and production and hence the monopolist can capture almost the entire consumer surplus and thus maximise value to himself.

I believe the natural tendency of businesses is to try and reach that position. However, natural limits to this are set in the real world by the force of government regulation or by the dynamics of the industry itself.

While the role of government regulation is obvious, let me clarify on how in certain industries, the dynamics of the industry itself sets a limit.

Let us consider advertising, for example. It would be difficult for any single agency to create a monopoly as by its very nature the industry is driven by creativity of its people and any monopolistic tendencies get rapidly challenged by new or other players.