This number, named after James Tobin, the famous Nobel laureate, rests on the thesis that the market would normally value companies in such a way that it reflects the replacement value of their assets. In a manner of speaking, the valuation in the used business market, implicit in the securities market, should correlate with the value of the underlying assets in an active second hand capital goods market, if it were to exist. The value stands at around 4 today.
Intellectual capital has various facets like goodwill and the ability to generate monopoly profits.
Champions of intellectual capital are known to include such diverse factors like the capitalised value of workers ideas, work environment provided in the company, gender composition of the work force, share of employees under 30, etc. The closest comparison is to valuing a human being at Rs 139, being the approximate market value of the chemicals in the human body. One of the reasons is that the market is forward looking, concerned more about future cash flows and profits of a company in valuing a business as a going concern and less at the balance sheet, which is static and represents, in a manner of speaking, the break-up value of the business. In the stock market, participants buy and sell future income streams and those income streams which appear to be more certain and are growing at a faster pace are fewer in number and are hence bid up aggressively in the market. Similarly, in quite a few instances, with the cost of new machinery and equipment coming down in the last few years owing to better technology, lower tariffs and higher levels of competition, historical book value is hardly a good enough indicator of future earnings potential.