a company to charge higher prices for its products and
generatemoreincashflows.Asaconsequence,valuingthese
intangibleassetsismoredifficultto do,buttherearethree
different ways we can go about estimating their value.
1.Capitalinvested. Wecanestimatethebookvalue ofan
assetbylookingatwhatafirmhasinvestedinthatassetover
time. With brand name, for instance, this would require
looking at advertising expenditures over time, capitalizing
theseexpenses,andlookingatthebalanceoftheseexpenses
todaythatremainsunamortized.Whilethis approachisthe
least subjective,itmaynot match or evenbe closeto the
marketvalueoftheasset.Itis,however,consistentwithhow
accountantsmeasurethevalueofothertangibleassetsonthe
books.
- Discounted cash flow valuation. We can discount the
expectedincrementalcashflowsgeneratedtothefirmbythe
intangibleassetinquestion.Thiswillrequireseparatingout
theportionoftheaggregatecashflowsofafirmthatcanbe
attributed to brand name or technological expertise and
discountingbackthesecash flowsatareasonable discount
rate. - Relative valuation.One way to isolate theeffect of an
intangibleassetsuchasbrandnameistocomparehowthe
marketvaluesthefirm(withtheintangibleasset)withhowit
values otherwise similar companies without the intangible
asset. The difference can be attributed to the intangible asset.
Inthesectionthatfollows,wetakeadetailedlookatbrand
name value and a more cursory look at human capital.