KUALA LUMPUR, Sept 22 — In practice, intangible assets can refer to different things but are generally used to mean economic assets which do not have physical substance or form, or are not tangible. Intangible assets include brands, goodwill, customer relationships, software and intellectual property related rights.
Intangible asset valuations are used, in particular, in accounting practice to recognise assets on business combinations at fair values, which is aimed at improving acquisition accounting transparency.
Most valued global brands
A company called Interbrand values the best 100 brands annually. The company has a network of 29 offices in 22 countries and is a global brand agency.
The company belief is that growth is achieved when an organisation has a clear strategy and delivers exceptional customer experiences.
The brand values of the top 100 companies for 2011 to 2015 are represented here (Source: www.interbrand.com).
From the illustrations, it is evident how Apple has consistently been the biggest and the most valued brand in the world over the last four years.
The brand value of Apple in 2015 was US$98.2 billion (RM403.99 billion). This is ONLY the brand value leaving aside other intangible assets and tangible assets of the company.
Likewise, it is evident how Google and Coca Cola have been scoring its value in the second and third positions, respectively, over the same period. It is also notable how Apple ranked only number 8 followed by IBM, Microsoft and Google in 2011.
An important point that can be gathered from the aforementioned information and the illustrations is that brand value can and does change over time. In the case of Apple, it has been on the rise over the past five years from 2011 to 2015. Apple’s brand value in 2011 was US$ 33 billion and within four years, Apple basically tripled its brand value to become the best and the most valued global brand.
How are brands valued?
When carrying out an intangible asset valuation, Intangible Business adopts widely accepted approaches based on a combination of the income, market and cost approaches.
These approaches have much in common with those used for brand valuation, business valuation, and intellectual property valuation.
• The income approach uses estimates of future estimated economic benefits or cash flows and discounts them, for the associated time and risks involved, to a present value.
• Relief from royalty method is based on how much the brand owner would have to pay to use its brand if it licensed the brand from a third party.
• Excess-earnings method calculates the earnings above the profits required to attract an investor – which uses the estimated rate of return based on the current value of the assets employed.
• Price premium method is based on a capitalisation of future profit stream premiums attributable to a business’ brand above the revenues of a generic business, without a brand.
• Capitalisation of historic profits method is based on the capitalisation of profits earned by the brand.
• The market approach uses market-based indicators of value. For intangible assets, this can be transactions involving selling, buying, franchising or licensing intangible assets which are often in practice bundled with other deals.
• P/E ratios method or price to earnings brand valuation method multiples the brand’s profits by a multiple derived from similar transactions of profits to price paid based on the value of reported brand values.
• Turnover multiples method multiplies the brand’s turnover by a multiple derived from similar transactions.
• There are two general considerations to the cost approach: the creation cost of creating the intangible asset and the estimated cost and time that would be required to create an equivalent or replacement intangible asset.
• Creation costs method estimates the amount that has been invested in creating the brand.
• Replacement value method estimates the investment required to build a brand with a similar market position and share.
Would you like to value your brand?
We specialise in Intangible Asset (IA) Valuations including brand valuations at PlaTCOM Ventures. Our IA Valuations experts have been trained by international organisations with vast expertise in valuations.
All our valuation reports are independently verified for their approach and validity by an international organisation that has consistently demonstrated best practices in IA valuations.
For further information, please contact us via firstname.lastname@example.org
* Dr Viraj Perera is the CEO of PlaTCOM Ventures Sdn Bhd — the national technology commercialisation platform of Malaysia — a wholly-owned subsidiary company of Agensi Inovasi Malaysia (AIM) formed in collaboration with SME Corp Malaysia.