intangible asset valuation are assets that can’t be seen, touched or measured. It’s hard to value intangibles because the value is determined by future cash flows. This can make it a challenge when trying to get a return on your investment. If you’re interested in learning more about intangible assets and how to accurately value them, keep reading.
An intangible asset is the definitive or difficult to measure property of an entity which is not physical. It can be either a skill, knowledge, reputation or franchise that is produced by an organization and sold for future use. However, we all know that intangible assets are not as tangible as tangible assets and cannot be measured exactly.
What are characteristics of intangible asset valuation?
Nowadays all company valuation have to use intangibles. These intangibles include customer loyalty, reputation and branding. They are not physical objects but they are assets with a value that depends on the performance of their various parts. Assets can be associated with tangible things and operated in similar ways.
Intangible assets are a part of an organization’s balance sheet. They are not tangible assets like buildings, machinery or furniture. As such, they cannot be seen by anyone other than the owners of the intangible asset.
Intangible assets include patents and trademarks, valuing goodwill, customer relationships and trade names. Many companies use intangibles as a source of competitive advantage over their competitors in the marketplace. There are several ways to value these intangible assets:
The useful life method: The useful life of an intangible asset is determined by taking into account certain factors such as its expected cash inflows and outflows over its lifetime.
The residual value method: This method considers the value of an intangible asset. When it is retired or traded for other businesses or industries.
The sales comparison method: This method looks at how much similar tangible assets would sell for if sold today.
How to value an intangible asset?
That is the question that keep many of us coming back in front office with one or two key questions. As a matter of fact, there are many situations, when you need to calculate monetary value of your company’s intangible assets.
Performing intangible asset valuation is a challenge, but it’s not impossible. For example, if you know the gross book value of your company, it’s simple to calculate the net book value of your company on a per share basis. However, if you don’t know how much cash is tied up in certain assets. How much value each individual asset has for your company, then valuation becomes very difficult.