Intangible Assets Valuation
In today’s economy, intangible assets have become increasingly important to companies in Singapore. These assets are non-physical in nature, including intellectual property, brand names, customer relationships, and goodwill. As such, valuing intangible assets has become a critical task for businesses looking to make informed decisions about investments, mergers, and acquisitions.
Intangible asset valuation in Singapore is a complex process that requires expertise in various areas, including accounting, finance, and legal considerations. There are three main approaches to intangible asset valuation, including the cost approach, the income approach, and the market approach. Each approach has its own advantages and disadvantages, and the most appropriate approach depends on the type of intangible asset being valued.
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 business value, most companies do not focus on valuing these intangible assets. Knowing how to value these intangible assets will ensure that you get the highest business value when selling your company.
Valuation Approaches to Intangible Assets
The cost approach is based on the idea that the value of an asset is equal to the cost required to replace it. This approach is often used for valuing patents, trademarks, and copyrights, as they have clear legal protection and can be expensive to develop. To use this approach, the cost of developing the intangible asset is determined and adjusted for any obsolescence or technological changes that may have occurred since the asset was developed.
The income approach, on the other hand, estimates the value of an intangible asset based on the future economic benefits it is expected to generate. This approach is often used for valuing customer relationships and other intangible assets that generate revenue over time. To use this approach, the expected future cash flows generated by the asset are estimated and discounted to their present value.
The market approach is based on the idea that the value of an asset is equal to the price that similar assets are sold for in the market. This approach is often used for valuing brand names and other intangible assets that are difficult to quantify. To use this approach, comparable transactions are analyzed to determine the market value of the asset being valued.
5 Valuation Methods to Value Intangible Assets
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)
Relief from royalty method is a method based on predicting the amount of revenue the intangible asset is expected to generate through owning the intangibles rather than licensing them.
Multiperiod Excess Earnings Method (MPEEM)
Multiperiod excess earning method is another way that intangible assets valuers calculate 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.
Cost Method
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 an intangible asset valuer. This will help you navigate the intangible asset valuation process in a more accurate manner. Read here to find out more about digital assets valuation.
Conclusion
In Singapore, intangible asset valuation is often performed by professional valuation firms that specialize in this area. These firms have the necessary expertise and experience to perform the complex analysis required for intangible asset valuation. Additionally, they can provide objective and independent opinions on the fair value of intangible assets, which is important for ensuring accuracy and reliability.
In conclusion, intangible asset valuation is an important task for companies in Singapore looking to make informed decisions about investments, mergers, and acquisitions. The process requires expertise in various areas, including accounting, finance, and legal considerations. There are three main approaches to intangible asset valuation, including the cost approach, the income approach, and the market approach. Professional valuation firms in Singapore can provide valuable expertise and experience in performing intangible asset valuation, ensuring accuracy and reliability.
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