Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

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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.



  1. Discounted cash flow valuation. We can discount the
    expectedincrementalcashflowsgeneratedtothefirmbythe
    intangibleassetinquestion.Thiswillrequireseparatingout
    theportionoftheaggregatecashflowsofafirmthatcanbe
    attributed to brand name or technological expertise and
    discountingbackthesecash flowsatareasonable discount
    rate.

  2. 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.

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