As the rise of new industries and businesses that depend heavily on intangible assets such as intellectual property or franchise rights, we have seen a growing demand of valuations for intangible assets. Intangible assets and intellectual property can include patents, trademarks, internet domains, customer lists, customer contracts, database, government contracts, computer software and more.
To properly determine the value of an intangible asset, there is a high level of expertise involved not only in finance, but also in the understanding of the specific target industry, business economics and competitive strategies within the regions of application.
We are the leading valuation company in Singapore that deals with Intangible Asset Valuation. Our valuers are Certified Patent Valuation Analyst and Chartered Valuers.
The methodologies used to value intangible assets are slightly different and can be complex to the standard valuation methods. Some of the methods are the Multi-Period Excess Earnings (MPEE) Method and the Relief from Royalty method.
Whilst the methodologies are one factor, the main skillset involved is determining the application of valuation inputs and using the most appropriate method.
Firstly, an intangible asset has to fulfil these criteria; it does not have physical substance, it is individual identifiable, and is non-monetary in nature. A general classification of intangible assets is:
Marketing related = Trademarks, newspaper mastheads, internet domains
Customer and supplier related = Customer list, production backlog, customer contracts and relationships
Artistic related = Books, operas, musical works, pictures, videos
Technology related = Patents, computer software, database, non-patented technology, trade secret like recipes
Contract related = Licenses, royalties, leases, franchise, rights, employment contracts
As mentioned earlier, the MPEE method is often used in valuing customer-related intangible assets. It is a financial model that estimates revenues and cash flows derived from the customer-related intangible asset and then deduct portions of the cash flow that can be attributed to supporting assets, such as a brand name or fixed assets that contributed to the generation of the cash flows, sometimes referred to as “supporting asset charges.”
The resulting cash flow, which is attributable solely to the customer-related intangible asset, is then discounted at a rate of return commensurate with the risk of the asset to calculate a present value.
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