The World's Most Innovative Software and IT Companies 2013

Most innovation rankings are popularity contests based on past performance or editorial whims. We set out to create something very different with the World’s Most Innovative Companies list, using the wisdom of the crowd. Our method relies on investors’ ability to identify firms they expect to be innovative now and in the future.

Step 1: In assessing a company’s current valuation, HOLT determines the next two years of cash generation from existing businesses for each firm based on the consensus estimate of earnings and revenues by analysts.
Step 2: HOLT then projects future free cash flows over the next 38 years from existing businesses based on fade algorithms developed from an analysis of historical cash flows from over 45,000 firms and more than 500,000 data points.
The fade algorithm for a given company is based on the following:
a)     The forward two-year consensus estimate of ROI level.
b)     Historical ROI volatility (over the previous five years).
c)      A company’s reinvestment rate.

Step 3: The difference between the company’s total enterprise value (market value of equity plus total debt) and this value of existing business constitutes the innovation premium, expressed as a percentage of the enterprise value.

1	Salesforce.com	United States	32.1	21.6	72.8
3	VMware	United States	16.3	19.0	63.7
31	Dassault Systemes	France	4.7	16.7	35.5
50	Citrix Systems	United States	16.5	19.6	30.7
56	Intuit	United States	9.1	17.3	27.9
72	SAP	Germany	6.1	7.0	22.7