Intangible Asset Valauations

Intangible assets are critical considerations when determining damages in an infringement case, negotiating a property settlement, valuing a company for conversion or sale, and quantifying a charitable donation. Despite their many applications, intangible assets are often underestimated or overlooked in the valuation process, particularly when they are non-revenue-generating assets.

Determining the Value of Intangible Assets

It is important to remember that just because an asset does not generate revenue does not mean it is not valuable. Copyrights, internet domain names, goodwill, computer software, proprietary lists, existing contracts, patents, and trademarks are all examples of intangible assets that add tremendous value, even if they do not actively generate revenue. The right strategic buyer would find specific intangible assets VERY valuable to their enterprise if they were to acquire or merge with the company in question.

Find the Right Analyst

Valuing intangible assets is not straightforward. They can be difficult to define, and there is no finite approach to determining their value—that is, there are many generally accepted methods. For this reason, it is important to choose a skillful and experienced valuation professional who can identify the proper methods of determining the value of the intangible assets in question.

Assess Market & Industry

To determine value, most valuation professionals will begin by assessing the industry and market in which the asset will be used. Market size, as well as current and projected economic conditions of a particular market, can have a significant influence on the growth potential of a company and its assets.

Analyze Intangible Asset Benefit Base

Next, they will determine an asset’s benefit base, which is the potential income and revenue an asset is projected to accrue throughout its projected useful life. In order to do this, a valuator could use a company’s real expenses alongside generally accepted accounting principles to determine economic income. Looking at expected operational income, royalty rates, cost savings and/or excess income associated with the use of the asset are also useful ways to determine the economic return an asset is likely to generate.

After gathering this information, a valuator will discount an asset’s expected benefits by an appropriate rate of return, taking into consideration the risks associated with returns.

Summing Up:

It is worthwhile to note that when it comes to patents, the IRS recognizes the income that can be attributed to the asset or its application, its safe rate at the time of valuation, and its reasonable, speculative capitalization rate as determined by the IRS, as acceptable means of determining the patent’s value.

While the process of valuing intangible assets does not have a standard method or approach, an experienced valuator recognizes their importance and will develop an approach that ensures the full value of these assets is considered.

To sell your business for the right price, you must understand the factors driving value. A valuation can help you get started. Get help from professionals (like our accredited valuation team) who will provide you with a valuation and value gap analysis.

Your valuation analyst can work with you to understand:

  • What factors or risks are present in the company holding value down?
  • What actions might the company take to improve value?
  • Are there risk mitigation steps that the company might take to improve value?
  • What will the impact of improved earnings have on value?

Since 2003, Quantive has performed over 3,000 business valuations. Contact our valuation specialists for a no-cost consultation today.



Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.



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