What Are Intangible Assets? Why They Make Up 80–90% of Company Value
Jeet Chaudhary
on
Glance at any major company's balance sheet, and you'll notice something strange.
The numbers won't add up to anywhere near what the market thinks the company is worth.
A business valued at $10 billion might show only $1 billion in "real" assets like buildings, equipment, and cash.
The other $9 billion? That's intangible assets, the part of a business you can't pick up and weigh.
For most of the 20th century, the math worked the other way. Tangible assets drove value.
Today, intangible assets, including brand reputation, intellectual property, software, customer relationships, and data, account for the overwhelming majority of corporate market capitalization.
The shift has reshaped how investors, lenders, accountants, and tax authorities think about what a company is actually worth.
Most people think a company's real value lies in its buildings, inventory, and equipment. It actually lives in its patents, brand, software, customer base, and goodwill.
At Virtue Advisors, our valuation team specializes in intangible asset valuation services built around ASC 350 and ASC 805 compliance, helping business owners, finance teams, and investors put defensible numbers behind the part of the balance sheet that drives 80 to 90 percent of corporate worth.
In this guide, you'll learn what intangible assets actually are, how they came to dominate company valuations, and why getting this right matters whether you're raising capital, selling your business, or filing your taxes.
Key Takeaways
- Intangible assets are non-physical resources, including patents, trademarks, brand value, software, customer relationships, and goodwill, that generate future economic benefit for a business.
- According to Ocean Tomo's 2025 Intangible Asset Market Value Study, intangibles now make up about 92 percent of the market value of S&P 500 companies, up from just 17 percent in 1975.
- Most internally developed intangibles, including the brand value you build yourself, never appear on the balance sheet under U.S. GAAP. Acquired intangibles do.
- Under ASC 350, indefinite-lived intangibles like goodwill are tested for impairment annually rather than amortized, while finite-lived intangibles are amortized over their useful life.
- The IRS requires acquired Section 197 intangibles to be amortized straight-line over 15 years for tax purposes, regardless of their book treatment.
- Valuers typically use the Income, Market, or Cost approach to put a defensible number on intangibles, with the right method depending on the asset and its data.
- Accurate intangible asset valuations are critical for M&A, fundraising, financial reporting, tax compliance, IP licensing, and exit planning.
What Are Intangible Assets?
An intangible asset is a non-physical resource that holds long-term economic value for a business.
Unlike a delivery truck or a warehouse, you can't touch or move it.
But it generates future cash flow, gives the business a competitive edge, and can often be bought, sold, licensed, or legally protected.
Under U.S. GAAP, ASC 350-30 defines intangible assets as assets that lack physical substance and are not financial assets. Common examples include:
- Patents, copyrights, and trade secrets
- Trademarks, trade names, and brand identity
- Customer lists, customer relationships, and contracts
- Proprietary software, algorithms, and databases
- Franchise rights, licenses, and permits
- Goodwill (the premium paid above identifiable net assets in an acquisition)
- Workforce expertise and training systems
- Domain names and digital assets
Two intangibles can look identical on paper and have radically different values. A patent expiring in two years isn't the same asset as one with a decade of protection left. A customer list with 80 percent annual retention is worth far more than one with 30 percent churn.
This is why professional valuation matters: the asset class is heterogeneous by nature.
How Intangibles Came to Dominate 80–90% of Company Value
For most of modern accounting history, tangible assets ruled.
Factories, machinery, inventory, and land made up the lion's share of corporate value. Then something changed.
The most widely cited data on this shift comes from Ocean Tomo, which has tracked the intangible asset market value of the S&P 500 for decades.
According to the 2025 Ocean Tomo Intangible Asset Market Value Study, released in February 2026, intangible assets now make up roughly 92 percent of S&P 500 market capitalization, while tangible assets account for just 8 percent. Ocean Tomo calls the long-term shift an "economic inversion."
Here's how the composition has changed over 50 years:
| Year | Tangible Assets (% of S&P 500 Value) | Intangible Assets (% of S&P 500 Value) |
|---|---|---|
| 1975 | 83% | 17% |
| 1985 | 68% | 32% |
| 1995 | 32% | 68% |
| 2005 | 20% | 80% |
| 2015 | 16% | 84% |
| 2020 | ~10% | ~90% |
| 2025 | 8% | 92% |
Source: Ocean Tomo 2025 Intangible Asset Market Value Study release.
Why the shift? Software, data, brands, and intellectual property scale in ways that physical assets simply can't.
A single algorithm can serve a billion users at near-zero marginal cost. A trusted brand pulls customers without a factory shift change. Pharmaceutical patents lock in years of cash flow without an additional ounce of raw materials.
The economy rewards intangibles because intangibles compound.
The same pattern is showing up globally, though with lower intensity.
European stock indexes still skew more tangible than the S&P 500, and Asian markets continue to climb toward U.S.-style intangible weights, but the long-term direction is the same.
Curious How Much of Your Company's Value Lives in Intangibles You've Never Put a Number on?
The Main Categories of Intangible Assets
Most intangible assets fall into one of six broad categories. Knowing which category an asset belongs to shapes how it's valued, how it's taxed, and how it's reported.
| Category | Examples | Typical Useful Life | Common Valuation Method |
|---|---|---|---|
| Marketing-related | Trademarks, trade names, brand value, internet domains | Often indefinite | Relief from royalty (Income) |
| Customer-related | Customer lists, customer relationships, order backlogs | Finite, 5 to 15 years | Multi-period excess earnings (Income) |
| Contract-based | Licensing agreements, franchise rights, leases, supply contracts | Tied to contract term | Income or Cost |
| Technology-based | Patents, software, trade secrets, databases, formulas | Finite, 3 to 20 years | Relief from royalty or Cost |
| Artistic-related | Copyrights, video and audio rights, manuscripts | Tied to legal life | Income |
| Goodwill | Residual after identifiable assets in an acquisition | Indefinite | Residual (purchase price allocation) |
Goodwill is the most-discussed category because it shows up on nearly every acquisition.
When one company buys another for more than the fair value of identifiable net assets, that premium gets recorded as goodwill.
It reflects the combined business advantages, market position, and continued earning power that don't sit neatly inside any single asset.
How Intangibles Show Up on the Balance Sheet (and Why Most Don't)
Here's where many business owners get tripped up. Just because intangibles drive most of your company's market value doesn't mean they appear on your balance sheet.
Under U.S. GAAP, the accounting treatment depends on how the intangible was created:
- Internally developed intangibles (the brand you built, the customer relationships you nurtured, the proprietary process you refined) are generally not capitalized. Most of the costs get expensed as incurred under FASB rules, with limited exceptions like certain internal-use software costs under ASC 350-40.
- Acquired intangibles (assets you buy in a business combination or asset purchase) are recognized on the balance sheet at fair value and accounted for under ASC 350.
This creates the famous gap between book value and market value. Coca-Cola's brand is worth tens of billions. None of that brand value appears on its balance sheet because Coca-Cola built it internally.
If another company acquired Coca-Cola tomorrow, that brand value would suddenly appear as an identified intangible plus goodwill on the acquirer's books.
ASC 350 then splits acquired intangibles into two buckets:
- Finite-lived intangibles are amortized straight-line over their useful life and tested for impairment when triggers occur.
- Indefinite-lived intangibles and goodwill are not amortized but tested for impairment at least annually.
For tax purposes, the IRS takes a simpler approach. Under IRS Section 197, most acquired intangibles, including goodwill, going-concern value, workforce in place, customer lists, patents, copyrights, trademarks, and franchise rights, are amortized straight-line over 15 years for tax purposes, regardless of their actual useful life.
Self-created intangibles generally don't qualify for Section 197 amortization.
This book-versus-tax divide is one of the biggest reasons companies maintain detailed records of every acquired intangible.
Acquired a Business and Need Clean ASC 350 and Section 197 Numbers on the Intangibles You Picked Up?
How Intangible Assets Are Valued
Valuing intangibles is harder than valuing a building. There's no Zillow for patents.
Most intangibles are unique, illiquid, and lack a direct market price.
Professional valuers rely on three accepted approaches, often using two of them to cross-check the result.
1. The Income Approach
The Income Approach values the intangible based on the future cash flows it's expected to generate, discounted back to present value. Sub-methods include:
- Relief-from-royalty: estimates the royalty payments the company avoids by owning the asset (commonly used for trademarks and patents)
- Multi-period excess earnings: isolates the cash flow attributable specifically to the intangible after deducting returns on other contributing assets (commonly used for customer relationships)
- With-and-without: compares the business's value with and without the intangible
This is the most commonly used approach for intangibles because cash flow is usually the strongest signal of value.
2. The Market Approach
The Market Approach looks at recent sale or licensing prices of comparable intangibles.
The challenge is that truly comparable transactions are rare and rarely disclosed in detail.
When good comps exist, this approach is powerful. When they don't, it serves as a sanity check on the Income Approach.
3. The Cost Approach
The Cost Approach estimates what it would cost to recreate or replace the intangible today, adjusted for obsolescence.
It's most useful for early-stage assets, internal-use software, or workforce-in-place, where future cash flows are hard to forecast.
A credible valuation will state which approach was used, why, what assumptions drove the numbers, and how sensitive the result is to those assumptions.
Virtue Advisors prepares intangible asset valuations under SSVS and NACVA guidelines, with reports built to withstand auditor review, IRS scrutiny, and investor due diligence.
Why This Matters for Your Business
The 80 to 90 percent statistic isn't just a curiosity. It changes how you should think about several real decisions.
Mergers and acquisitions. When you buy or sell a business, the price almost always exceeds book value. The difference lies in intangibles. Buyers want to know what they're really paying for. Sellers want every dollar of brand, customer base, and IP defended with a number. A proper business valuation for mergers and acquisitions breaks the purchase price down to its identifiable intangible components and the residual goodwill.
Fundraising and financing. Banks lend against tangible collateral easily; intangibles are harder to lend against without a credible valuation. Investors want to see how brand, IP, and customer base support the multiple you're asking them to pay.
Financial reporting. ASC 805 purchase price allocations require identifying and valuing every material intangible acquired in a business combination. ASC 350 then governs how those intangibles are tested, amortized, or written down.
Tax planning. The IRS Section 197 15-year amortization can produce meaningful deductions after an acquisition, but only if the intangibles are properly identified and supported in the asset purchase agreement.
IP licensing and litigation. Royalty negotiations, damages calculations, and infringement settlements all hinge on what an intangible is worth.
Exit planning. Owners preparing to sell often discover their business is worth far more than the balance sheet suggests, but only if the intangibles are documented, defensible, and presented well.
Planning an Acquisition, Fundraise, or Exit and Need Every Dollar of Intangible Value Documented?
The Bottom Line on Intangible Assets
If you take only one thing away from this guide, let it be this: the part of your company that doesn't show up on the balance sheet is almost always worth more than the part that does.
For S&P 500 firms, the ratio sits at roughly 92 percent intangible, 8 percent tangible. For mid-market and private companies, the exact mix varies, but the direction is the same.
Whether you're preparing for a sale, raising your next round, working through purchase accounting after an acquisition, or planning succession, the value of your intangibles deserves the same rigor you'd apply to your real estate or your inventory.
The team at Virtue Advisors brings 25-plus years of valuation experience, CVA® and AICPA-qualified professionals, and reports prepared under SSVS and NACVA guidelines, ensuring your intangible asset valuations stand up to auditors, the IRS, and investors alike.
If you're ready to put a defensible number on the hidden side of your balance sheet, our valuation team is here to help.
Ready to Value the Intangibles Driving Most of Your Company's Worth?
Frequently Asked Questions
Jeet Chaudhary
Jeet Chaudhary serves as the Chief Operating Officer at Virtue CPAs, where he leads the firm’s Global Control Centre and oversees end-to-end operational excellence.
