Red Flags: Intangibles

I very much dislike intangible assets, the growth or continued presence of them on a balance sheet always throws up a red flag for me. Maybe it is due to my value investor perspective but giving financial credence to a resource that I can’t see, can’t touch and can’t prove generated a cent of revenue in a business is something I just don’t like.

Definition

An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today’s marketplace.
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Building a Simplified Graham Value Stock Screener

I did a search and could not for the life of me find a link to a prebuilt Google screener for Graham’s value investing system. So lets quickly build one:

Through the Graham series we said we would only consider companies that:
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1. Had a P/E of less than or equal to 15.
2. A book value of greater than or equal to 0.01.
3. A price to book value of less than or equal to 1.5.
4. A current ratio of more than or equal to 2.
5. Earnings Per Share Growth rate on average of greater than or equal to 33% over 10 years.

Buy a Company with a Future (Book Value) (Session 3)

Book Value is a pretty easy one as compared to Price to Earnings. So let’s get into it we will need it for other calculations.

What is it?

What does it tell us?

As with price to earnings ratio imagine if you will that you are buying a company but instead of running the company you are closing it out and selling off all the equipment. To do that you have to pay off the debts of course no one is going to let you walk out the door without paying the bills.
So if you have $1,300M in current assets, Current and long term Liabilities of $600M and preferred shares of $450M. Then you have a book value of:
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