Reimagining the Financial Ratios

Comparing Brand Values in the Technology Industry

Michael Kraten, PhD, CPA

Last year, in “Reimagining the Financial Statements” (The CPA Journal, April 2015, http://bit.ly/1SSQXz7), this author restated certain fiscal metrics of Apple Inc. to incorporate the value of the company's intangible brand asset. Although such assets are not capitalized under GAAP, the article noted that the recognition of Apple's brand value would result in the transformation of a key financial ratio that would enable analysts to restate an outlier metric to a less statistically extreme value. By applying data transformation techniques to such extreme values, the article concluded that financial analysts could avoid excluding outliers from their portfolio analyses and thus improve their techniques of statistical analysis. But the article did not extend these data transformation techniques beyond Apple to comparable technology companies, and thus could not test its conclusion against a portfolio of similar equity investments. This article presents such a calculation and assesses the results.