Invisible, yet Invaluable: Valuing Intangibles in the Birkenstock IPO!

The author believes that the stock market's reception of Instacart's IPO reflects the current state of risk capital. The author plans to use Birkenstock's upcoming IPO to discuss the valuation of intangible assets and critique the accounting world's approach to this issue. The author argues that while intangible assets have always been important in valuation, their significance has increased as technology companies have become more dominant. This shift is evident in the changing composition of the top companies globally over the past few decades. The author notes that many companies going public today have unproven business models, making it necessary to assess the value of their future growth potential. However, accounting practices often fail to capture this value, as expenses related to intangible assets are treated as operating expenses rather than capital expenditures. This treatment results in an underrepresentation of intangible assets on balance sheets and distorts earnings figures. The author criticizes accounting's attempts to incorporate intangible assets, arguing that goodwill, a major component of intangible assets on balance sheets, is merely a plug figure and not a true asset. The author concludes that accounting's backward-looking and rule-driven nature makes it ill-suited to value intangible assets, which require forward-looking and principle-driven approaches.