Balance sheets have lost their balance. While accountants continue to tote up cash and physical assets such as buildings and equipment, corporate success in the Digital Age is being determined by bits, brains, and other intangibles that no one can seem to quantify on a balance sheet.

At the end of 1999, the book value of Internet service provider America Online was a scant 2% of the company’s total market capitalization. In other words, 98% of AOL’s value wasn’t on its balance sheet. Even at old-line General Electric, book value constituted only 10% of its market value. The rest was in intangibles.

In Cracking the Value Code: How Successful Businesses Are Creating Wealth in the New Economy, Richard Boulton, Barry Libert, and Steve Samek suggest a useful—if sketchy—way for starting to think about the valuation problem.

Although the authors are hardly the first to note that balance sheets are inadequate, the book does provide a framework for five categories of assets that could be valued on a balance sheet. Two are traditional categories: physical assets (plant and equipment) and financial assets (cash and receivables). To these, the authors add three categories: employee and supplier assets, customer assets, and organizational assets. By employee and supplier assets, the authors mean a corporation’s products and services, plus the skills and knowledge of its and its suppliers’ work forces. Customer assets include the information a company has about its customers, plus the distribution channels used to reach them. Organizational assets are a company’s intellectual property, its leadership, its culture, and the like.

The book devotes a chapter to each of these categories, using lots of examples that help make the authors’ point about the clear value of items not on the balance sheet. For instance, in writing about employee and supplier relationships, the authors show that drug maker Pfizer has garnered a high market value, in part, because it has developed the largest, and some say best, pharmaceutical sales force. The authors say that No. 3 auto maker Chrysler, until its recent troubles, competed effectively with its much larger rivals Ford Motor and General Motors by developing a network of parts suppliers that acted almost as an extension of Chrysler.

However, the book says little about how to actually assign a valuation to the new classes of assets that it describes. Instead, the book focuses on how to use assets in innovative ways. The authors argue that something as mundane as a physical asset can be used in profitable new ways. They say retailer Wal-Mart Stores, for example, has exploited the value of its buildings by leasing floor space to other companies, such as the fast-food chain McDonald’s.

As the authors delve into examples of their asset categories, some of the concepts get squishy. Based on the book’s framework, some approaches to business would need to be treated as assets in more than one category. For instance, the make-to-order model of computer retailer Dell Computer produces physical assets (because of low inventory costs), supplier assets (because of an efficient supply chain), and customer assets (because of a distribution channel that lets Dell ship products quickly and inexpensively). In addition, in writing about organizational assets, the authors cite Johnson & Johnson’s decentralized operating structure, and even the leadership aura of IBM Chairman and Chief Executive Lou Gerstner. Both assets are ephemeral. Indeed, lackluster growth in IBM’s revenue recently has generated doubts about just how much magic Gerstner is producing.

Some of the assets described in the book won’t consistently generate actual earnings or cash flow, and, unless that happens, an asset’s "value" will be as temporary as investors’ whims. Just look at Priceline.com, the name-your-price Internet company, and CMGI, an incubator of Internet start-ups. Both companies’ stocks have crashed just in the months between the time when the authors finished the manuscript and the book’s publication.

So, while the book is a good, thought-provoking read, it ultimately fails to create a genuinely new accounting system, certainly not one that could stand up before the Financial Accounting Standards Board or the Securities and Exchange Commission. Until one comes along, I guess we will still be able to say that accountants can tell you the exact cost of everything, but the true value of nothing.

Nee has struggled for years to determine the true value of the companies he writes about. He has been right more often than he has been wrong, probably because he has never paid much attention to things such as balance sheets. He can be reached at eric_nee@timeinc.com.