Intangible assets are assets that lack physical substance, in a literal sense something, that cannot be touched or felt. Few examples are Franchises, copyrights, trademarks, Patents, Brand names.
These assets play a crucial role in any enterprise but, Since intangible assets aren't financial assets, it is difficult to know the exact value.
Intangible assets can either be acquired or internally created and, according to IRFS and GAAP, both are valued in different ways the asset acquired or the one formed internally.
A company develops its intangible asset portfolio by valuation and, it affects its balance sheets and earnings. Intangible Valuation is essential for determining the fair value for the assets for the company's economic advantage. An enterprise must do Valuation of intangible assets when:
- It is calculating an exchange ratio between two entities for two respective intangible asset portfolios.
- It is the pricing sale of an individual intangible asset or a portfolio of two or more intangible assets.
- It measures the asset distributions in a liquidating business or during merger and acquisition when one or more parties receive intangible assets.
- It is registering custodial inventory and management of owned and licensed intangible assets.
- For accounting and regulatory purposes (tax)
Intangible Valuation Consultants
There are many consultants that a company hires as an evaluator—someone with expertise to do this complex job of intangible valuation and put a price on the assets.
They provide Intangible valuation consultancy. They help you with quantifying the fair value for your assets through extensive research and experience. Various valuation methods like Excess Earnings, Royalty Relief, DCF, and Comparable Multiples are used for intangible valuation. After the proper study, they prepare extensive databases for the company and peer companies to analyze the worth of the enterprise with/without intangible assets, determining the asset value.
They provide substantial reports stating all the factors and reasons for asset value. You'll get the most desirable and fitting values for your intangibles if you assign the task to an experienced consultant.
Intangible Valuation Services:
Intangible valuation services include:
- Value identifiable intangible assets for technology, trademarks, patents, etc
- Quantify company's goodwill
- Value complete entities, business units, functions within entities, etc.
There are three types of approaches for Intangible Valuation:
Market Approach: Finding the company's peers, analyzing and comparing identical intangible assets and their transactions. Can also check for other data like their franchise value, royalty price, etc. from the publicly available databases and determine the value for intangible asset
Income approach: The income approach is a valuation method that uses the income the asset generates to estimate the fair value; it's used when the intangible asset contributes to the company's cash flow.
Cost Approach: This approach is based on the principle of substitution. In this, we see how much cost it will take to produce another new unit of the same asset.
In conclusion, Intangible valuation should be included in enterprise valuation as it has a pivotal contribution to the enterprise's net worth. New technologies and methods should be taught in the market for the valuation of intangible assets that should be widely accepted.