Methods of Measuring Intellectual Capital and the Efficiency of Investment It: Advantages & Disadvantages. Analytical Comparative Study

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1 Methods of Measuring Intellectual Capital and the Efficiency of Investment It: Advantages & Disadvantages. Analytical Comparative Study Ibrahim. A. H. Mohamed Kastamonu University Abstract: This study presents a comparative analysis for methods of measuring intellectual capital through focusing on most common methods by addressed literature, with the aim of finding an appropriate method adopting on the discussion of advantages and disadvantages per method. Where the findings showed through this analytical comparative study all the methods have weaknesses Except for that the value added intellectual capital Coefficient( VAIC ) affiliated to (ROA) method is the best way to creating added value and the appropriate method for measuring intellectual capital and the efficiency of investment it. KEYWORDS : intellectual capital, measuring, methods, advantages, disadvantages. 1. Introduction The relative importance of the nature of tangible assets has deteriorated through last decades as there has been an upsurge in the importance of intangible assets that based on knowledge. Where that Intellectual capital associated with intangible assets that represented mainly in the knowledge that is in itself an intellectual, not physical, so measuring Intellectual Capital is essential and very important in order to compare different companies, to estimate their real value or even to control and improvement their activities. Because which can t measure it, it cannot be managed it and then cannot judge the value and effectiveness of investments it. Also to improve the way in which companies manage its intellectual resources that generate value and give back some benefits in consequences maximizing advantages for the company (Jurczak,2008). Many companies s have always used a variety of methods to measure and evaluate their assets, as it was in the past the focus is on financial Intangible assets only, measured by the ways in which specializes in the measurement of this type of asset, but in light of the knowledge economy a search is performed for new ways of measuring specializes in trying to measure the intangible resources in spite of the existing difficulties, due to newness of the subject of intellectual capital, there is no agreed unified way for its measure despite the many attempts made to it. and it's measurement methods. Consequently, the analysis will present the advantages and disadvantages of each method which analyzed to providing information for companies, business people, and academics to facilitate and provide new perspectives, where methods of measuring intellectual capital in continuously increasing. This call for academics and researchers to revaluation the foundations of management and accounting systems which are useful for managing and measuring of intellectual capital. Methods of measuring intellectual capital Nowadays, in spite of the attempts of many researchers to measure intellectual capital but this process became facing some difficulties, as the following: Some intangible assets which are originally difficult to measure, Creativity for example, which is at the core of knowledge generation process, it is a process unable to be predicted and their results are unpredictable also and can appear in different ways. The intellectual capital which is considered valuable to a certain company may not be the case for other companies Differs in the nature of work, as a result of that different measurement systems appear making the comparison between companies and sectors of different nature is a difficult thing. Historical reasons, the accounting rules in spite of constantly revised on the regular basis, it had been originally designed for actual assets, Such as machinery which represent wealth during the industrial age. (Starovic & Marr, B. 2003, p:7 CIMA). In spite of the existence of these difficulties, we cannot overlook the need and importance of measuring intellectual capital and for the following reasons: Imperial Journal of Interdisciplinary Research (IJIR) Page 1083

2 1. The intellectual capital measure is contributing effectively to determine the real value of the organization, Because it represents the difference between the book value and market value of the organization, Whenever the difference is high, the organization is richer by her ideas and her intelligence and knowledge. 2. Increased attention and recognition of the real value (market) for the intellectual capital for companies despite the lack of methods of measurement and evaluation of accounting and traditional financial indicators. 3. The growing recognition of the essential role played by intellectual capital in the overall performance of the company in terms of physical results or in terms of market competition Thus, the measurement of intellectual capital to achieve a twofold objective: the first is to assess the organization in order to reach its real value in the market (external perspective),the second is to determine the cognitive components of the organization in order to manage,in order to improve performance (internal perspective), where many researchers believe that the real value of the organization cannot be assessed without taking in the account the intangible assets, Neely,Such as knowledge of workers and Culture of the company and relations with stakeholders and markets and competitive position and other assets out of budget. (Marr, ScNeely,2004). According to Luthy (1998); Jurczak (2008); Sydler et al (2013) there are sets of methods of measuring the Intellectual Capital that used for evaluation these assets, can be divided into four main groups in detail with introducing of advantages and disadvantages all these methods as following: 1. Direct Intellectual Capital Methods (DICM). 2. Market Capitalization Methods((MCM). 3. Scorecard Methods (SC). 4. Return on Assets Methods (ROA). Pike & Roos (2004, October) where asserted another method to becoming five methods which are: 5. Proper Measurement Systems (MS). Everything has value inside the company and outside it can be measured. These are built into a measurement system, such as conjoint hierarchy uses real data to produce reliable calculations of value with financial data to provide value for money and related outputs. In this study, the searcher will discuss four methods from the most common methods that addressed by literature. Methods of measuring intellectual capital 1. Direct Intellectual Capital Methods (DICM) : First: Technology Broker method: This method to Brooking (1996) where refers to estimation the coin value of intangible assets through identifying its different components, that components are identified, they can be immediately evaluated, either individually or as an aggregated coefficient. The IC Audit model suggested by Annie Brooking (1996) that, is trying to calculate Dollar value for intangibles assets of the organization known as IC. Brooking was interpreted, that IC include the following components :( assets of markets, Assets related to humans, Assets of intellectual property and Assets OF infrastructure). (Luthy,1998, August). Market assets, known as market-related intangibles such as: (brands, customers, distribution channels, contracts, franchise contracts and specific licensing agreements. Where that Assets related to humans are the knowledge of the people within the organization such as: ( ability to solving of problems, expertise, entrepreneurial, managerial skills, and creativity). Whereas, Assets of intellectual property represent assets which can be expressed in financial terms like :( trade secrets, copyright, patent, service marks and design rights). Lastly, Assets of infrastructure are those operations, technology and methodology which allow organizations to work.(monavvarian & Lotfizadeh, 2007, p:21 ; Jurczak,2008, p:42 ). Second : Citation weighted patent : This method to Bontis,1998, where, refers to the factor of technology that calculated according to patents developed by a firm. Where the performance of intellectual capital is measured based on an effect of researching development of efforts on groups of indices, for example, a number of patents and cost of patents to sales turnover, which depict the patents of an organization (Jurczak, 2008,p:42). Third :The Value Explorer : This method to Andries sen &Tiessen (2000) where refer to proposed by KMPG to calculate and allocate value five kinds of intangibles assets: i)- Assets and endowments, ii) - Skills & implicit knowledge, iii) - the rules of Collective values. iv) - Technology and explicit knowledge, iv) - major and management processes. Imperial Journal of Interdisciplinary Research (IJIR) Page 1084

3 Fourth: Intellectual Asset Valuation: This methodology to Sullivan where, refers to use in estimate the value of Intellectual Property. (Jurczak, 2008,p:42). Fifth :Total Value Creation, TVC : This method to Anderson &Mclean where refer to use in discounted projected cash-flow to reexamination to how events impact on planned activities. 2. Market Capitalization Methods (MCM): Methods of Market Capitalization include a group of manners such as: First: Market to Book Value : This method to Stewart where, this method is based on the assumption that the increase in market value of an entity (the value of shares of shareholders) to its book value represented in the intellectual capital of the entity, meaning that intellectual capital expressed as a cash residual values. But disadvantage of this method ignoring part of the difference between the market value and book value, this may be due to other factors such as the market, in order to take advantage of this method the book value which is calculated by historical cost must be adjusted to substitutive cost, in order to calculate the value of intellectual capital more accurately, because the historical data deformity measurement process. ( Luthy, 1998, August, p: 8 ; Jurczak, 2008,p:41,42). Second: Tobin, s Q : This methodology developed by Tames Tobin who has Nobel prize in economics proposed this method to help to predict the investment decisions for the organization, it is not improved from the beginning to measure the intellectual capital, Q is the ratio of market value of the organization divided by the replacement cost of the assets, and reflect the investments in human capital and information technology, the positive value of ratio Q refers to the intellectual capital, which is not shown by traditional accounting systems, If the proportion was less than one, the asset value be less than the replacement value, and thus it is Improbable that the company will buy more assets of this type, On the other hand if the ratio Q is greater than one, the company will invest in similar assets, which are worth more than the cost of their replacement, The advantage of this method eliminate effect of the different consumption policies, which vary from one company to another and from one country to another, which considered more meaningful when comparing companies over a period of time. ( Luthy, 1998, August, p: 9 ; Jurczak, 2008,p:41,42 ; Van den Berg, 2003, p:14). Third: Financial method of intangible assets measuring ( FIMIAM) : According to this method, you can estimate the monetary value of the intellectual capital of the company, on the grounds that the difference between the market value and book value represents the intellectual capital which is divided into human capital, structural capital and customer capital. The advantage of this method is providing information on intellectual capital for the interested and enable to make decisions. The disadvantage of this manner. Despite being different from other manners,which consider the difference between the market value and book value fully the value of the intellectual capital,this manner consider this difference is the achieved intellectual capital which differs from the real intellectual capital, the steps to defined the achieved intellectual capital according to this manner is not clear, In particular with regard to the identification parameters for each component of the three components of the intellectual capital, and also the difference between the real intellectual capital and the achieved intellectual capital which expressed as defunct Capital cannot be calculated. ( Jurczak, 2008,p:41,42). 3. Scorecard Methods (SCM): Methods of Scorecard include a group of manners such as: First: Balanced Scorecard "BSC" : In 1996 each of (Kaplan & Norton ) proposed a form for Balanced Scorecards one of the tools that aim to create an integrated vision for Measuring Systems. Where it does not include financial elements only but include non-financial elements as well (such as the market, internal processes, learning)it affects the organization's performance, the Balanced Scorecard also complement the role of information which is obtained through traditional measurements with three additional point of views which are: customers, internal processes, growth and learning, base of Balanced Scorecard is that if the organization wants to achieve success it must have to combine requirement of three groups which are investors, Imperial Journal of Interdisciplinary Research (IJIR) Page 1085

4 customers, and staff. Thus, the Balanced Scorecard becomes through its content of measurement to evaluate the intellectual assets such as skilled labor, creativity and innovation and high-quality products, it offers a holistic strategy for the evaluation of activities related to the generation of value through tangible and intangible resources, this is what distinguishes it from other accounting forms. (Monavvarian & Lotfizadeh, 2007, p:21 ; Jurczak, 2008, p:40; Van den Berg, 2003, p:15,16). (See Figure 1). systems as well as some financial indicators, The special dimension focusing on innovation and renewal tries to measure the creative capacity of the company by measuring the effectiveness of their investment in training and spending on research and development,finally measuring dimension related to human resource include dimensions that reflect the human capital of the company and how to develop and enhance these resources, also Skandia Explorer interested in temporal perspective of mentioned dimensions,achieving a balance between the past who cares in measurements & financial indicators only, and ending into the future, which focus on innovation and creativity value of the company and is expressed in some financial and non-financial indicators, So the intellectual capital extends according to Skandia Explorer to include all dimensions,, the following figure 2 shows the fivedimensional for Skandia Explorer. ( Luthy,1998, August, p :6,7; Monavvarian & Lotfizadeh, 2007, p: 21; Marr, Schiuma & Neely,2004, p: 555,557 ; Van den Berg, 2003, p:17,18 ; Jurczak, 2008, p:42). (See Figure 2). Figure 1: Balanced Scorecard (Kaplan & Norton, 1996). Source: Herman Anthony Van den Berg, Second: (Skandia Navigator) : Skandia Sweden company who work in the field of financial services and insurance began in the year 1991 to work on building. Instruments to measure intellectual capital, through her intellectual capital director ( Leif Edvinsson )Where he has developed a model called by the name of Skandia discoverer,so this model includes a set of elements which form the intellectual capital of the organization in addition to the method of its administration, this model is designed to produce a balanced view for the intellectual capital and financial capital of the organization. The major feature of this model in presenting a balanced and completed view of the organization's operations, and that by focusing on five dimensions mainly in the organization which are : ( Customers, Processes, Human, Research, development & Financial ). for each dimension of the fivedimensional a set of indicators is available, for example, it is found that the indicators used to express the financial focus is often financial,special dimension care on focusing on the customer to estimate customer capital for the company,both the financial and non-financial indicators are used in this, for the indicators used to focus on Processes, it emphasizes the effective use of technology and quality control processes and quality management Figure 2. Skandia Navigator Source : Bernard Marr et al,2004. Third : Intangible Asset Monitor (IAM) : Intangible Asset Monitor developed by Sveiby in 1997 when he was working as financial manager in one of the biggest companies,while he was working he realized that traditional data of the company was more like a joke and that the value of the company has already lain in its assets based on knowledge and invisible,this method based on total market value which includes visible liabilities ( book value ), and three types of intangible assets represented in knowledge capital which is divided in internal structure, individual competence, and external structure, the external structure includes trademarks and relation with the suppliers and customers, internal structure consists of internal administration and legal administration and research, progress, programs systems but individual abilities include education and experience. ( Monavvarian & Lotfizadeh, 2007, p: 21 ; Marr, Schiuma & Neely Imperial Journal of Interdisciplinary Research (IJIR) Page 1086

5 ,2004, p :560 ; Van den Berg, 2003, p :23,24 & Jurczak, 2008, p:42). (See Figure 3). Figure 3 : Market Value of a Company (Sveiby, 1997). Source: (Herman Anthony Van den Berg,2002). Forth: Knowledge Assets Map ( KAM ) : Knowledge assets map provide a wider framework of organization knowledge internally and externally,it also allows organizations to distinguish critical areas of knowledge within the organization, where the knowledge assets are classified within the organization to structural resources and resources of stakeholders,the last is classified as the relationship with stakeholders a relationship outsourcing, human resources a relationship indoor, Structural resources to be classified as physical infrastructure and moral infrastructure referring to physical nature and The incorporeal nature, the moral infrastructure is divided to Culture of the organization, procedures and practices and Intellectual Property, under each category of these categories it is possible to provide a wide range of indicators for the purpose of measuring and evaluating these assets. In order to determine its contribution to the creation of value for the organization. (Marr, Schiuma & Neely,2004, P:561,562 ; Starovic, & Marr, 2003, p:9). (See Figure 4). First : Calculated Intangible Value (CIV): This method is the only one that can be easily applied to any person from outside the company without the need for a specific type of information within the company, Where this method is designed to estimate the value of the intellectual capital of the company, which is based on company's profits should be higher than the industry average so the value of intellectual capital can be calculated, and the company that reaches to the level of the average industry in terms of profits and extends, this is the result of intellectual capital, method of calculating value of intellectual capital divided into six stages : 1. Calculating the average of company's profits before taxes for a period of three years. 2. Calculating the average of company's tangible assets for the same period (from the budget). 3. Calculating the return on company's Assets by dividing average of company's profits before taxes on the average tangible assets of the company, according to the following equation: A. If the return on tangible assets of the company is bigger than the return on the tangible assets of the industry the rest of the steps to be completed, but if it is equal zero or less it should be stopped at this point, and thus there is not intellectual capital for the company. B. Calculating The increase in return on assets by multiplying the industry average by the tangible assets average, then multiplying the result by the tax rate to get the increase in return after tax. C. Calculating the value of intellectual capital, by dividing the increase in the return on assets on the cost of capital, as the following equation: The advantage of this method is getting easily the data from the budget, and also the possibility of getting the value of intellectual capital, however practically it is not used only slightly. Figure 4: Knowledge Assets Map. Source: (Bernard Marr,2004). 4. Return on Assets Methods (ROA): Return on assets methods include a variety of methods which are: Second: Economic Value Added ( EVA) : It is a measure which has been developed in the eighties by one of the Consulting companies in New York ( Shorn Steward)as an indicator of shareholder returns, This measure is commonly used in many of US companies including Coca-Cola, AT&T, In Imperial Journal of Interdisciplinary Research (IJIR) Page 1087

6 Australia it is used by Fletna Ltd also in James Harder Industries, this measure highlighted a lot of distortions in the accounting system, represented in difference between profits and capital cost, Providing a measure directly linked to the return on used capital, the measure is calculated as following : An equation for calculating EVA as following : EVA = (RI) + (AcAdj) Where: : RI = (NOPAT) (Cap Chg) NOPAT = (EBEI) + (ATInt) EBEI = (CFO) + Accurals ATInt =NIE x (1 Tax Rate) Where : Residual Income = RI Accounting Adjustments= AcAdj Net Operating Profits After Taxes= NOPAT Capital Charge= Cap Chg Earnings Before Extraordinary Item= EBEI After Tax Interest= ATInt Cash Flow from Operations= CFO Net Interest Expense= NIE The charge for use of capital. It includes interest on the debt plus a charge for the equity capital based on a cash equivalent equity multiplied by a cost of equity= CapChg. In a simplified way EVA is net operating profit minus an appropriate burden for the opportunity cost of the total capital invested in the company, by this EVA is the amount which increase profit or decrease from the first rate return which is possible to get it by shareholders and lenders to invest in other paper Securities with approximating risks. Taking into consideration all capital cost including Property rights, EVA shows cash amount of wealth created by the company by the invested money represented by issuing stocks and borrowing and retained earnings and according to Stem Steward when EVA used as a tool, it turns managers focus to general budget rather than focusing on the income. Estimating the burden of the use of capital, EVA makes managers interested in asset management and incomes and to estimate reasonable settlement between them and all the basic management decisions and its works connected actually by one measure which is EVA ". Also, according to Stem Steward the general traditional budget often needs to be rewritten, and give an accurate picture of used capital, and often it includes the addition of intangible assets, more than one adjustment is applied to general budget and other adjustments may include the addition of research and development costs R&D and the appropriate parts of the marketing expenses, If this is not done EVA shows short-term shortage although the investment may be finally growing EVA. Despite the prevalence of this measure, it faces many of the criticisms of them analysts begin to acknowledge that Eva must be completed with standards to give stronger links between long-term plans and financial targets and securities price, Critics confirms that it is still a historical measure, It does not make any sense for the connection between the company's investments in intangible assets and financial performance, as well as it is criticized for its inability to explain why that the facilities can be successful a year and then be unsuccessful in the following year. (Van den Berg, 2003, p :9,10 ; Jurczak, 2008, p:40 ; Starovic, & Marr, 2003, p:15). Third: Value Added Intellectual Capital Coefficient (VAIC ) : Value Added Intellectual Capital Coefficient is developed by the Austrian (Ante Pulic ) in 1998 to measure the extent of the organization's ability to create value as a measure of the efficiency of investment in intellectual capital in light of the current economy which is based on the knowledge, where it was later known as the Austrian approach. ( Abidin, Kamal, & Jusoff, 2009, P: 154,155 ; Starovic, & Marr, 2003, p:18). An equation for calculating VAIC as following : (VAIC = CEE + HCE + SCE) Where : Value added intellectual coefficient = VAIC. Capital employed efficiency coefficient = CEE. Human capital efficiency coefficient = HCE. Structural capital efficiency coefficient = SCE. Pulic(1998) seeks to show which measuring system would realize the requirements of new business environments and needs of modern companies and in his opinion, this measuring system has to meet two requirements : 1. Establish reliable and objective guide for processes of value creation. This means precise measuring of knowledge which the employees incorporate into products and services. 2. providing safe and objective information on the intellectual ability to employees to create value, because they far outweigh the assets that appear on balance sheets. Value Added Intellectual Capital Coefficient (VAIC) work on measuring efficiency of Intellectual Capital of the organization beside its physical capital, it consists of sum of three components ratios, which are :the efficiency of Imperial Journal of Interdisciplinary Research (IJIR) Page 1088

7 human capital and structural capital efficiency (which include efficiency of internal capital and relation capital together ), and efficiency of used capital ( which include Both the efficiency of physical and financial capital together ) Where the sum of these ratios forms the efficiency of intellectual capital. This manner is also based on the assumption that measure and develop of the added value of a company may have an impact on the market value of the company, through the review of 250 Study of a number of exchange companies and financial companies included in the American Stock Securities It shows that there is a close relationship between the efficiency of creation the value of resources and the market value of companies, it is based on measuring the efficiency of the intellectual capital of the company. ( Abidin, Kamal, & Jusoff, 2009, p : 154,155). Used calculates the difference between sales and all inputs (except labour expenses), divided by intellectual capital, that, estimated by total labour expenses. The higher of the ratio and the more efficient to an organization is at using intellectual assets, so (Value Added Intellectual Capital Coefficient) is calculated according to following steps: 1: calculating company added value ( VA ) Added value ( VA) = Output - Input Or Added value ( VA) =Net income before taxes and dividends +Total staff costs + Expense of fixed assets consumption 2: calculating efficiency of used capital (CEE) It is calculated by dividing added value on used capital (physical capital) CEE = VA CE Efficiency of used capital ( CEE ) describes amount of added value for company which is generated by physical capital Each of the following to be calculated : A. Efficiency of Human capital ( HCE) : It is calculated by dividing added value on human capital HCE = VA HC It is indicator for the efficiency of added value by using human capital. B. Efficiency of Structural Capital (SCE) : Structural Capital (SC) = added value (VA) - human capital (HC) It is calculated by dividing structural capital on added value : SCE = SC VA It is indicator for the efficiency of added value by using structural capital. ( Van den Berg, 2003, p: 23,24 ; Starovic, & Marr, 2003, p:18). 3. Calculating Efficiency of intellectual capital ( ICE ) It is calculated by sum of efficiency of human capital plus efficiency of structural capital. ICE = HCE + SCE Finally, calculating Value Added Intellectual Capital Coefficient (VAIC ) by the sum of the efficiency of used capital plus the efficiency of intellectual capital. VAIC = CEE+ICE This method to way of creation new value of the organization through invested cost in its physical and intellectual resources, the higher the value of (VAIC) indicates the ability of the organization in using its resources in a better way in creating added value, that means it supply us with information about how they lead their investments in resources to create a certain amount of value added in the future, Investors can also benefit from this method to identify investment opportunities in the future.(komnenic, Tomic & Tomic,2010, P:27-28). The advantage of this method is that it provides useful information to stakeholders such as managers, investors, and governments. (Abidin, Kamal, & Jusoff, 2009, p: 154,155). According to, Svanadze & Kowalewska (2015). They used Public's ( VAIC ) method. Where the source of data came from balance sheets and profit and loss accounts for the period( )Warsaw Stock Exchange. They provided the means to measure intellectual capital and the efficiency of its individual components - showed manufacturing companies has a lower level of intellectual capital than telecommunications or financial companies. Likewise, According to Nimtrakoon (2015) Adopted Public's ( VAIC )method in measuring IC. Where the data are taken from 220 technology firms listed on five Asian stock exchanges ( 2011) to three components of IC is a measure of the efficiency of capital employed (VACA), human (VAHU) and structural capital (STVA). The findings indicate a positive relationship between( IC) and stock market value, asserting that if the firm has a high (IC) this meaning it has better performance in the market. Through above review of the literature on the subject of this study to access the appropriate method in measuring of intellectual capital, the searcher would provide at the second part,the most important advantages and disadvantages of the these common methods of measurement that addressed by the study and make comparison to reach of the Imperial Journal of Interdisciplinary Research (IJIR) Page 1089

8 appropriate method of measuring from the researcher perspective through what has been discussed at the next section. METHODS OF MEASURING (I C) ADVANTAGES & DISADVANTAGES: 1. ( DIC ) METHOD : ADVANTAGES. - Offering the ability to create a clearer picture than both of methods ( MCM) and (ROA) than financial metrics. - more detailed and accurate and can be easily applied at any level of an organization - faster and more accurate than (ROA )and (MCM) methods with respect to the resource - More detailed and can be easily applied at any level of an organization. They measure intellectual capital resources from the bottom up - They are very useful for not-for-profit organizations and do not need to be measured in financial terms - Can be easily applied at any level of an organization. - not need to measure in financial terms they are very useful for non-profit organizations. DISADVANTAGES. - cannot be connected easily to financial statements results. - The meaning of resource might differ to each organization and to each purpose, this makes comparisons not easy that cannot be easily connected to pending financial results always been a weakness of the intellectual capital movement. 2. ( MC ) METHOD : ADVANTAGES. -depended on financial metrics which, if not perfect, are auditable where find have an element of rigor in that. -help to build because it depends on accounting rules. -can give crude comparisons between companies within the same industry and they give far too little detail for an adequate comparison. -They attempt real valuations and may appear useful in many situations since they can give crude comparisons between companies within the same industry. -In The book value method affiliated to (Mc) method, It is a simple method, market. This indicator can be easily computed for the companies listed on the stock market. -About, stakeholders outside, refer to a high value. -In The Tobin, s Q method affiliated to (Mc) method the positive value of ratio Q refers to the intellectual capital, which is not shown by traditional accounting systems, this advantage of this method eliminate the effect of the different consumption policies. - In the (FIMIAM) method affiliated to (Mc) method the advantage of this method providing information on intellectual capital for the interested and enable to make decisions. DISADVANTAGES. - This method give far too little detail for a complete comparison. - This method the weakest measurement methods where market vagaries can lead to big changes in intellectual capital and lead to highly suspicious indicators. - In The book value method affiliated to (Mc) method, this method, ignoring part of the difference between the market value and book value, which is calculated by historical cost, must be adjusted to substitutive cost, in order to calculate the value of intellectual capital more accurately and there is found quite low relevancy for senior manager also, there is problem related to a price per share where, affected by external factors facing the management, which cannot controllable - In The Tobin, s Q method affiliated to (Mc) method, The method using replacement cost of tangible assets, instead of their book value. Also, many difficulties with the market-to-book ratio are neutralized - Market-to-Book value &Tobin s( Q ) There is not very significant practical.usefulness for the company management - In the (FIMIAM) method affiliated to (Mc) method, the steps to defined the achieved intellectual capital according to this manner are not clear and the difference between the real intellectual capital and the achieved intellectual capital which expressed as defunct Capital cannot be calculated. 3. ( SC ) METHOD : ADVANTAGES. -Offering the ability to create a clearer picture than both of methods ( MCM) and (ROA) than financial metrics. -They also measure intellectual capital resources from the bottom up. They are very useful for not-forprofit organizations. - faster and more accurate than (ROA )and (MCM) methods with respect to the resources. -more detailed and can be easily applied at any level of an organization. - In the (BSC) method affiliated to (SC) method, offer both Kaplan & Norton a holistic strategy for the evaluation of activities Imperial Journal of Interdisciplinary Research (IJIR) Page 1090

9 related to the generation of value through tangible and intangible resources, this is what distinguishes it from other accounting forms. Authorize managers to understand the company s strategy and their mission in an inclusive group of performance measures - This method uses software solutions which facilitate a lot the process of collecting and processing data. Help to translating all the main objectives at the level of the company to employee level objectives, this helping to involve everybody - Targets play an important role and measuring the improvements in the various areas are proportional with these targets. Help management to translate strategy into action. - In the Skandia Navigator method affiliated to (SC) method presenting a balanced and completed view of the organization's operations, and that by focusing on five dimensions mainly in the organization which is: ( Customers, Processes, Human, Research, development & Financial). This meaning is achieving a balance between the past who cares in measurements & financial indicators only and ending into the future which focuses on innovation and creativity value of the company and is expressed in some financial and non-financial indicators. It is one of the best-known methods for measuring of intellectual capital. -In Intangible Asset Monitor (IAM) affiliated to (SC) method. Sveiby The first who was realized that traditional data of the company was more like a joke and that the value of the company has already lain in its assets based on knowledge and invisible. Stakeholders are taken into consideration, this enhancing the importance for managers.- it is complicated to create the comparison to company with other company. - In Knowledge Assets Map (KAM) affiliated to (SC) method. this method provide a wide range of indicators for the purpose of measuring and evaluating these assets, In order to determine its contribution to the creation of value for the organization. DIS ADVANTAGES. -The meaning of resource might differ to each organization and to each purpose, this makes comparisons not easy that cannot be easily connected to pending financial results always been a weakness of the intellectual capital movement. 4. ( ROA ) METHOD : ADVANTAGES. -Usually, It has an element of rigor in that because they rely on financial figures which, if not perfect, are auditable. -Tool at help to the build, because it depends on accounting rules. -They attempt real valuations and may appear useful in many situations since they can give crude comparisons between companies within the same industry. -These methods are indicators at best but with significant intra-sector comparability. -very sensitive to interest rate assumptions. -No used for non-profit organizations... -VAIC a different method and considers more detailed, and there is a relationship between the activities and the resources used and financial results. -can use it to determine investment opportunities through Economic Feasibility Studies. -more objective and verifiable compared to other measurements. VAIC method refers to how the organization's ability to using its resources in the best way to creating added value. -The investor is giving great Importance to companies that maximize the efficiency of the performance of intellectual capital by calculating(vaic), Where that increased its value refers to firms efficiency in management and investment their resources in the financial securities market. -VAIC is a simple and straightforward method to use in determining the value of IC and gives an important information to managers, investors, and governments. -VAIC can be successfully used for statistical analysis. - The source of data in VAIC derived directly from the financial statements, therefore, is an actually. DIS ADVANTAGES. -Except for VAIC, in fact, these methods are not really intellectual capital methods but it as a simple meaning of explaining a financial feature and attributing changes in them to the efficiency in the deployment of intellectual capital resources. -Gives far too little detail for an adequate comparison. -The methods are also very sensitive to interest rate assumptions. -These methods avoid direct comparison with market values. -ROI method except for ( VAIC ) fails as a measuring system due to internal difficulties and the defined resources independence. Conclusion The importance of investing in intellectual capital abilities in adding value to the organization, and Imperial Journal of Interdisciplinary Research (IJIR) Page 1091

10 enhance its competitiveness, especially for those operating in the knowledge-based industry as the most important resource in light of today's knowledge-based economy. The investment in intellectual capital through spending on a set of different aspects represented by the staff such as attract new employees or training existing employees and enhancing their abilities and increase their skills, and attention to the relationship with the customer also is consider the basis for the formation of intellectual capital for the organization to enjoy with a strong human capital represented in the knowledge, skill and ability and creativity, and also strong structural capital and its content from relationship with customers, strong infrastructure systems, information & technology systems and communications to allow workers to raise their abilities and skills from one side, customer service to ensure their loyalty and satisfaction from the other side, which leads to increase the efficiency of the performance of investment in intellectual capital,and then create a high added value to the organization in the light of the knowledge economy by success and competitiveness and achieve profitability. From this objective that organizations seek to achieved, should be there is an appropriate method for measuring the IC and helping to achieve these goals. The results showed All the methods have weaknesses Except for the value added intellectual capital Coefficient( VAIC ) affiliated to (ROA) method is the best way to creating added value and the appropriate method for measuring intellectual capital measuring the efficiency of that investment is through the use of Value Added Intellectual Capital Coefficient. The researcher suggested this method because it is the best suited in his opinion to determine the efficiency of investment in intellectual capital. [7]Luthy, D. H. (1998, August). Intellectual capital and its measurement. In Proceedings of the Asian Pacific Interdisciplinary Research in Accounting Conference (APIRA), Osaka, Japan (pp ). [8]Marr, B., Schiuma, G., & Neely, A. (2004). Intellectual capital-defining key performance indicators for organizational knowledge assets. Business Process Management Journal, 10(5), [9]Monavvarian, A., & Lotfizadeh, F. (2007). Measuring Intellectual Capital. SCMS Journal of Indian Management, April-June, [10]Nimtrakoon, S. (2015). The relationship between intellectual capital, firms market value and financial performance: Empirical evidence from the ASEAN. Journal of Intellectual Capital, 16(3), [11]Pike, S., & Roos, G. (2004, October). Measurement issues in intellectual capital a review. In International Forum of Intellectual Capital. Taiwan. [12]Pulic, A. (1998, January). Measuring the performance of intellectual potential in knowledge economy. In 2nd McMaster Word Congress on Measuring and Managing Intellectual Capital by the Austrian Team for Intellectual Potential. [13]Starovic, D. & Marr, B. (2003). Understanding corporate value: managing and reporting intellectual capital. CIMA. [14]Svanadze, S., & Kowalewska, M. (2015). The measurement of intellectual capital by VAIC method example of WIG20. Online Journal of Applied Knowledge Management, 3(2), [15]Sydler, R., Haefliger, S., & Pruksa, R. (2014). Measuring intellectual capital with financial figures: Can we predict firm profitability?. European Management Journal, 32(2), [16]Van den Berg, H. (2003). Models of intellectual capital valuation: a comparative evaluation. In The 6th World congress on the management of intellectual capital, McMaster University, Hamilton, Canada. References [1]Abidin, Z. Z., Kamal, N. M., & Jusoff, K. (2009). Board structure and corporate performance in Malaysia. International Journal of Economics and Finance, 1(1), 150. [2] Bontis, N. (1998). Intellectual capital: an exploratory study that develops measures and models. Management decision, 36(2), [3] Brooking, A. (1996). Intellectual capital. Cengage Learning EMEA. [4] Jurczak, J. (2008). Intellectual capital measurement methods. Economics and organization of enterprise, 1(1), [5] Kaplan, R. S., & Norton, D. P. (2004). Measuring the strategic readiness of intangible assets. Harvard business review, 82(2), [6]Komnenic, B., Tomic, D. V., & Tomic, G. R. (2010). Measuring Efficiency Of Intellectual Capital In Agriculture Sector Of Vojvodina. APSTRACT: Applied Studies in Agribusiness and Commerce, 4. Imperial Journal of Interdisciplinary Research (IJIR) Page 1092