VALUATION
BUSINESS INTANGIBLES™ valuates your company’s Intellectual Property and Intangible Assets using a number of proven methods. Traditional methods such as cost approach, market approach, and income approach may be selected based on the type of asset where a sound valuation can be derived. Additionally, we always look at asset bundling possibilities and combinations of Intellectual Property/Intangible Asset matches as used by the company to generate maximum value.
Asset Approach
The asset bsed approach method focuses on the company's net asset value, or fair market value. It is the primary method used in the building of Enterprise Value Accounting System™. Each asset is valued and considered as an independently valued entity of the company. Other methods of valuation such as cost, income, and market may be utilized to determine a specific asset approach value.
Cost Approach
Two styles of valuating are considered when utilizing the cost approach. First, a historical cost basis. This method values the asset based on its historical cost, depreciating value based on its reasonable useful life. Second, the replacement cost basis. This method values the asset based on the current cost duplicating the asset as if purchased today. The differences between the historical cost method and the replacement cost method can be subject to technology improvements, market efficiencies, or competition.
These methods of valuation are based on the economic principle of substitution, in that the buyer will pay no more for an asset than the cost to develop or obtain a similar asset. For example, Intellectual Property in the form of a patent would be valued based on the research costs to duplicate the asset, including fees, registration, etc. Then the value is depreciated to the remaining useful life of the patent prior to becoming public domain.
Income Approach
An income approach valuation is determined by future income streams from an asset. The criterion considers the duration and risk associated with the generation of the income stream. When valuing an Intellectual Property for example, consideration is given to separate the Enterprise Value and the Intellectual Property income that supports the business.
When utilizing income approach valuation, an asset is valued at its present value of future income as accrued by the company. The income approach allows for the utilization of sensitivity analysis, adjusting the parameters, and allowing for how variances may affect outcomes. Monte Carlo software such as Crystal Ball is utilized by BUSINESS INTANGIBLES™ to create multiple scenarios, presenting situation awareness analysis.
Market Approach
The market approach valuation method is a comparison of assets to current sale costs, or arms length transactions involving similar assets in a similar market. This method is primarily used with Intellectual Properties as licensing opportunities. The value is based on the projection of income derived from either exclusive or non-exclusive licensing deals.