How are intangibles valued?



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So when determining the asking price of a company or a product, we understand that many intangibles come into the equation. How are these valued? Is there a pre determined value for them? If so, who sets the price?

4 Answer(s)


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While calculating the asking price for a company the intangibles are not really valued separately. The assumption is that any intangible of any value should manifest that value through the revenue or cash flows.

Then methods such as DCF, Comparables etc use this revenue and cash flow to value the company. Hence the intangible are implicitly factored into these valuation numbers. The intangibes have value only to the extent that they contribute to the company's operations.

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Large companies that have intangibles in terms of goodwill, r&d expense etc will sometimes perform individual valuations of these intangibles to reflect accurately on their balance sheet. Popular techniques for this include DCF and IRR and Comparables. Here is a terrific source for valuing intangibles -

http://people.stern.nyu.edu/adamodar/pdfiles/ovhds/dam2ed/intangibles.pdf

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But to Value Intangible Asset i Think we have Accouting Standard 26 which speaks about its Valuation.

But as per the Question During Acquisitons they Assume that the Consideration Payable Includes the amount towards Intangibles Assets Alos

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A company's intangible assets are valued by subtracting a firm's book value from its market value. However, opponents of this method argue that because market value constantly changes, the value of intangible assets changes also, making it an inferior measure. Finding a company's Calculated Intangible Value involves seven steps:

1. Calculate the average pretax earnings for the past three years.
2. Calculate the average year-end tangible assets for the past three years.
3. Calculate the company's return on assets (ROA).
4. Calculate the industry average ROA for the same three-year period as in Step 2.
5. Calculate excess ROA by multiplying the industry average ROA by the average tangible assets calculated in Step 2. Subtract the excess return from the pretax earnings from Step 1.
6. Calculate the three-year average corporate tax rate and multiply by the excess return. Deduct the result from the excess return.
7. Calculate the net present value of the after-tax excess return. Use the company's cost of capital as a discount rate.