What are Invisible Assets
Invisible assets are assets that cannot be seen or touched, but still provide value to the holder. Although an invisible asset is intangible, meaning it does not have a physical presence, it provides a financial value that can be approximated. Generally speaking, accounting standards require invisible assets to be accounted for in a firm's financial statements. An invisible asset is more commonly referred to as an intangible asset. Invisible assets are the opposite of tangible assets, which can be seen and touched. Tangible assets can be real, such as machinery or manufacturing plants or financial, such as stocks or bonds.
BREAKING DOWN Invisible Assets
An invisible asset cannot be held or seen, unlike tangible assets which have a physical presence. Examples of invisible assets include brand recognition and intellectual property such as trademarks, copyrights or patents. Consider for example the Nike "swoosh" logo. This logo has a high degree of brand recognition, meaning that it is easily recognized and associated with the firm Nike by the general public. Another example of an invisible asset is the Geico talking gecko, which the firm has trademarked. The talking gecko has been featured in many commercial advertisements for Geico insurance. Although the Nike swoosh and the Geico talking gecko generate no explicit revenue or income, they are valuable to these firms in that they drive consumers to their products.
The Impact of Invisible Assets on Company Success
The value of invisible assets may be difficult to quantify, but they can be important to the long-term success of a company relative to its competitors. For example, invisible assets can contribute to differences in the market value of otherwise similar companies. Nike competes with several other athletic gear manufactures, such as Adidas (ADDYY) and Under Armour (UA). All three produce clothing, footwear and athletic gear marketed to consumers globally. However, Nike's market value as of early 2018 is almost triple that of Adidas and more than 14 times that of Under Armour. To be sure, there are many nuances to the differences in capital structure, expenses and so forth between these firms, but Nike arguably has the greatest brand recognition among this group. This invisible asset could be a material source of the disparity in market valuations among them.