Intellectual Capital Valuation and Debt Service: Combining EBITDA with Operating Cash Flows

Abstract

Purpose: This paper aims to detect how intangibles can create scalable, synergistic and externally perceived value, softening debt constraints that traditionally affect IC.Design/Methodology/Approach: A comprehensive IC valuation approach is theoretically linked to measurable accounting sources, looking for its scalable impact on economic margins and financial flows. Corporate finance implications are then analyzed, softening information asymmetries and so enhancing debt capacity.Findings: IC has a low and mis-perceived collateral value, so discouraging debt, but is also -- paradoxically -- a fundamental component of cash generating value, so representing a key factor for debt servicing, especially if properly combined with scalable and value adding strategies. EBITDA, marginally increased by synergistic intangibles, plays a key role as a bridge between accrual and cash flow accounting, and so between market and income value; operating cash flows and consequent debt service capacity, also derive from pivotal EBITDA.Research Limitations/Implications: The impact of IC scalability, through operating leverage, on valuation and debt capacity is just drafted, with somewhat unsophisticated assumptions. Capricious interaction of IC assets is still a mystery and so is their inside and externally perceived impact on value, demanding further research and empirical testing.Practical Implications: Better identification and measurement of IC. Proper detection and accounting measurement of the interdependence between operating and financial leverage eases value assessment and debt placement, softening information asymmetries.Originality/Value: An innovative evaluation framework, with an interdisciplinary accounting, economic and financial approach, is proposed in this paper, with practical insights for IC value maximization.