Methods of Valuing Intangible Assets
Intangible assets include trademarks and brand names, contracts, patents, and patent applications, franchisees and other licenses, and goodwill. These assets are valuable and can be valued just like physical assets. Although the intangibles being a major part of a company's overall value, most companies do not focus on valuing these assets. Knowing how to value these assets will ensure that you get the highest value for selling your company.
Since investment in intangible assets is rapidly growing, these assets' values can be considered the driving force of some businesses. Here are five methods of intangible asset valuation:
Relief from Royalty Method (RMM)
The method is based on predicting the amount of revenue the asset is expected to generate through owning the intangibles rather than licensing them.
Multiperiod Excess Earnings Method (MPEEM)
The valuators predict the after-tax cash flow that an asset can generate. It is considered the most accurate method of valuing intangible assets. It narrows down to cash flows from one intangible asset and measures its value.
The cost method assesses the cost associated with the replacement or development cost, such as labor and resources. This method is used by startup companies with difficulties in forecasting or where there is little or no information.
Real Option Pricing
This method is mostly used for valuing intangible asset that is not generating revenue for the business right now but is forecasted to bring income in the future. They include undeveloped patents and other resources.
With and Without Method (WWM)
Intangible value is calculated by assessing the difference between two discounted cash flow models: one model is based on a status quo for the business having the intangible and another without the asset.
When you need to perform a valuation of your business' intangible assets, you need to take know how to identify and understand the intangible assets. Some of the main assets that are considered intangibles are intellectual property, trademarks, customer data, and brands. Sometimes, non-compete agreements are also considered to be intangible assets.
It is recommended that you seek the help of a professional valuer. This will help you navigate the valuation process in a more accurate manner.
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