One of the best ways to put a figure on knowledge is here. A look at "www.Knexa.Com" will show that the site has already managed to give some kind of a figurative value to knowledge.

"www.Knexa.Com" is basically what we can call a knowledge exchange. Knowledge is traded on this site just like shares and commodities are traded on an exchange.

The knowledge that is traded can be in terms of questions or even persons. Every question for which the user needs an answer will be posted on the web. Once an answer is posted, the same answer is opened up for trading. After the best price is decided, the exchange charges a commission.

These knowledge exchanges are becoming very popular on the web. In a very crude manner, people have been able to put a price on the silliest of questions.

In future, one would not be surprised to see people deciding the figure of intellectual assets of a firm by coming to a price through the "ask" and "bid" mechanism.

But then again our traditional accounts will always have problems with putting these kind of values on the balance sheet.

In the case of equity, there is a physical transaction.

However, in the case of knowledge even if a fair price is arrived at on the bourses for intellectual assets, there can be no physical delivery. It will end up as just an exercise to find the right price.

Thus, our ancient accountant's age-old argument will remain. Since there is no physical transaction, there is no deal.

As the importance of knowledge gains ground, knowledge scientists are devising more and better ways to put a figure on knowledge.

CFO magazine, a niche publication belonging to the Economist group, published an article on valuing intellectual capital in its February 1999 issue.

Captioned "Seeing is believing", the article highlighted a performance-based calculation of knowledge capital developed by Lev Baruch, the Philip Bardes Professor of Accounting and Finance at New York University's Leonard Stern School of Business. The method is a tool for measuring the economic consequences of investments in knowledge assets. Excerpts from the article:
Calculating knowledge capital starts with an estimate of each company's annual normalised earnings. For the scoreboard's purposes, the estimates encompass three years of historical data through year-end 1997 plus earnings forecasts for one, two and three years taken from IBES International consensus estimates. To accommodate business changes that are likely to affect future results, averages give slightly greater weight to earnings forecasts. Performance improvements expected beyond three years do not affect the Scoreboard.

Once normalised earnings are established, a figure for knowledge-based earnings, the scoreboard's primary building block, is determined based on a residual calculation. Expected rates of return for each broad asset class are applied to tangible book assets and financial assets.

The scoreboard multiplies the recorded assets by their respective after-tax expected returns - 7 percent for tangible assets and 4.5 percent for financial assets.

The rates of return apply to all companies equally, irrespective of each company's risk profile or cost of capital. With more time and resources, companies can adjust these rates to reflect their specific track records. This limitation notwithstanding, the process computes credible measures of earnings linked to tangible and financial assets.

Subtracting tangible and financial earnings from normalized earnings leaves a portion of normal earnings unaccounted for. This residual, says Lev, represents earnings generated by knowledge assets, or knowledge capital earnings (KCE). This calculation by itself suggests a range of new financial metrics, including a knowledge capital margin (KCE/sales) and a knowledge capital operating margin (KCE/operating income), to name just two.

With these measures, companies can, for the first time, estimate the contribution of knowledge assets to their profitability and performance.

The formula solves for knowledge capital by reversing the steps for calculating earnings that tangible and financial assets generate. Instead of multiplying assets by their expected returns, knowledge-based earnings are divided by an expected rate of return for knowledge assets. It is a familiar process with one hitch: no one has ever computed a historical expected rate of return for knowledge assets.

This is where the proxy comes in handy. The average after-tax expected rate of return for three knowledge-rich industries (software, biotechnology and pharmaceuticals) supplies the after-tax knowledge capital discount rate of 10.5 percent.

Paul Strassman, who writes for kmmag.com, a site dedicated to knowledge capital, has given rave reviews to Lev. In an article titled 'In search of knowledge capital', he says, "in contrast to attempts published by other experts, who are more akin to judging beauty contests, we finally have before us a reproducible and independently verifiable calculation.

"Even more important is that Lev's concept of "comprehensive value," defined as the sum of financial capital (e.g. book value) and knowledge capital, provides a way to determine the worth of corporate knowledge and ideas".

He further argues that though Lev Baruch has managed to put dollar value on knowledge capital, his formula does not reflect the valuation markets place on a firm. Stocks are either overpriced or the knowledge capital is underpriced.

In its February 2000 issue, CFO carries an article titled 'The second Annual Knowledge Capital Scoreboard: A Knowing Glance'. It has Lev Baruch saying that with the incredible potential of knowledge assets comes great managerial difficulties and challenges. It is much harder to manage knowledge assets than physical assets".

The article carries another of Lev's scoreboards. It ranks the top companies in 20 different industries.

The companies have been ranked according to their levels of knowledge capital, from a high of $ 211 billion down to small companies.

The following table indicates the intellectual capital of US companies published by CFO.