It would be easier for us as analysts if companies

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It would be easier for us, as analysts, if companies reported credible market on their balance sheet. However, allowing companies to report estimates of asset market s would introduce potential bias into financial reporting. Consequently, companies continue report historical costs because the loss in reliability from using subjective market values on the e sheet is considered to be greater than the loss in relevance from using historical costs. It is important to realize that balance sheets only include items that can be reliably mea- . If a company cannot assign a monetary amount to an asset with relative certainty, it does recognize an asset on the balance sheet. This means that there are, typically, considerable ts" that are not reflected on a balance sheet. For example, the well-known apple image is t from Apple's balance sheet. This image is called an "unrecognized intangible asset." Both . ments for an asset are met: Apple owns the brand and it expects to realize future benefits rhe logo. The problem is reliably measuring the expected future benefits to be derived from image. Intangible assets such as the Coke bottle silhouette, the iPod brandname, and the Nike h also are not on their respective balance sheets. Companies only report intangible assets me balance sheet when the assets are purchased. Any internally created intangible assets are reported on a balance sheet. A sizable amount of resources is, therefore, potentially omitted companies' balance sheets. Excluded intangible assets often relate to knowledge-based (intellectual) assets, such as a g management team, a well-designed supply chain, or superior technology. Although these gible assets confer a competitive advantage to the company, and yield above-normal income clear economic benefits to those companies), they cannot be reliably measured. This is one why companies in knowledge-based industries are so difficult to analyze and value. Presumably, however, companies' market values reflect these excluded intangible assets. This yield a large difference between the market value and the book (reported) value of a com- _0 0 equity. This is illustrated in the following ratios of market value to book value (averages _011): Apple is 5.4 and Target is 2.3. These market-to-book values (ratios) are greater for ':::::I~ruu·es with large knowledge-based assets that are not reported on the balance sheet, but are ted in company market value (such as with Apple). Companies such as Target have fewer ese assets. Hence, their balance sheets usually reflect a greater portion of company value. ilities and Equity ilities and stockholders' equity represent the sources of capital the company uses to finance acquisition of assets. In general, liabilities represent a company's future economic sacrifices. ilities are borrowed funds such as accounts payable and obligations to lenders. They can be st-bearing or non-interest-bearing.
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