We are in the midst of the Fourth Industrial Evolution, the executive chairman of World Economic Form, Klaus Schwab, claimed in a 2015 article.  Shcwab expects this era to be marked by breakthroughs in emerging technologies in fields such a robotics, artificial intelligence, nanotechnology, quantum computing, biotechnology, the internet of things, the industrial internet of things (IIoT), decentralised consensus, fifth-generation wireless technologies (5G), 3D printing and fully autonomous vehicles.

This revolution is expected to impact all disciplines and economies – and is already disrupting almost every industry, creating changes at an unprecedented rate.  What’s more, the Fourth Industrial Revolution promises much in the way of efficiencies and productivity gains.  It will almost certainly lead to enormous growth in the value of intangible assets.

Innovation requires companies to invest in research and development in-house or to acquire the innovations of others.  Investors are always keen to realise returns from innovation, but current accounting treatments mean that many of these intangible assets are not recognised on balance sheet as assets but rather as expenses.

Many stock market darlings have business models based around their software and technology assets.  These companies have few physical assets to leverage, yet their valuations often trump the industrial giants.  So, understanding how to properly value non-physical assets is fast becoming a central component of our expertise and skill.

 

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