Odd Lots Michael Mauboussin On Valuing Intangible Assets
Nov 5, 2020
Michael Mauboussin, Head of Consilient Research at Counterpoint Global, specializes in valuing intangible assets. He dives into the differences between traditional and modern valuations, particularly in tech stocks. The discussion covers how accounting changes affect investor perceptions and the complexities of valuing major firms like Microsoft. Mauboussin also unpacks the challenges of valuing these assets in mergers and acquisitions, emphasizing the need for a nuanced understanding of revenue generation and market behavior.
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Intangible Investments and Earnings
- Earnings used to be on the income statement and investments on the balance sheet.
- Now intangible investments like brand building and R&D are expensed on the income statement, affecting earnings.
Free Cash Flow and Intangibles
- Free cash flow remains unaffected by adjustments for intangible investments.
- Investors need to analyze investments and their returns, even if accounting standards don't fully reflect them.
Microsoft's Intangible Value
- When adjusted for intangibles, Microsoft's cash earnings rose 15% and invested capital rose 80%.
- This adjustment highlights how traditional metrics can misrepresent a company's financial picture.
