differentlevels forthebrand nameandthegeneric
company. Alegitimateargument canbe made that
brand name companies have less market risk
(unlevered betas), more debt capacity, and lower
costs of capital.In all of these approaches, we are making two key
assumptions.Thefirstisthatagenericcompanyexistsand
thatwehaveaccesstoitsfinancialstatements,thoughneither
thebrandnamecompanynoritsgenericcounterpartneedto
bepubliclytraded.Thesecondisthatthebrandnameisthe
onlyreasonfordifferencesinmargins,returnsoncapital,and
excessreturnacrossthesecompanies.Totheextentthatbrand
nameisintermingled with otherintangibleassets,what we
willgetis aconsolidatedmeasureofvalueforallofthese
assets.Thismakesitmoreappropriateforproductswherethe
onlyreasonforpricingdifferencesisthebrandnameandnot
product quality or service. Thus, this approach is more
appropriateinvaluingbrandnameatCoca-ColaorMarsInc.
but less so in valuing brand name at Sony or Goldman Sachs.
Excess Return Models
When a generic company does not exist, there is an
alternativeapproachthatwecanusetovaluebrandnames,
though it makesits ownset ofheroic assumptions. If we
assumethatalloftheexcessreturns(returnsoverandabove
thecostofcapital)earnedbyafirmcanbeattributedtoits
brandname,thevaluationofabrandnamebecomessimple.
In Chapter 6, we introduced the excess return model for
valuing firms and showed that in the absence of excess
returns,afirmwilltradeatthebookvalueofcapitalinvested.
Ifweassumethattheexcessreturnsareentirelyattributable