Thinking Outside the Bucks

Sorry my post is so late. I used Atlantic Broadband’s server problems this evening as an excuse for a nap. My one-year-old, black lab mix, rescue dog just exhausts me.

Yesterday, I started ruminating about how one helps investors understand a business’ principal investments in the new economy: a business’ intangible assets. Monday, The Wall Street Journal (on page B3 of the print edition) had an interesting article about this. (Can’t provide a free link, sorry. The article is only available online with a pay service, and I do not want to cause Michael problems by violating a WSJ copyright.)

The article discusses how to measure customer satisfaction. A satisfied customer is likely to become a repeat customer or recommend the company. Satisfied customers make a business more valuable, as they mean future business.

Big companies, like GE and Enterprise Rent-A-Car are learning a lot about how their businesses are doing by polling customers and asking them to score the companies on a 1 to 10 scale on a few simple questions, such as how likely that the customer would recommend the business to a friend. These customer polls generate numbers, although not in dollars. Numbers beyond the domain of accountants.

More apres click.

The obvious question is whether all companies should be required to do similar polling and provide that info to investors. Sounds like government meddling with business. That’s what business said about the securities acts in the 1930s, too. Not worth the money. That’s not what companies that have tried it believe.

Another problem with this information is that it is separate from the financial statements and is not in dollars. There is no ready way to use the info to temper the accounting numbers in valuing a business. Customer satisfaction data could just confuse investors. More work clearly is needed, particularly on converting customer satisfaction into dollars. But, it is clear that investors need some information about the intangible values in businesses and traditional accountings do not do so. Think about how, during the tech bubble of the 1990s, a joke high-tech business and a winner had very similar financial statements. The accounting statements were useless. A great series of Doonesbury cartoons had Doonesbury running a high-tech firm and trying to lose more money so as to look more like a successful bubble firm. Something should be done to help investors here, and the accountants, who lack the required expertise to act here, are ignoring the problem.

Tomorrow we will look more at the dollars here.

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