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

Wecouldintroducea brand namedummyvariable

intotheregressionandcaptureitseffectonvalue.For

instance, using EV/Sales ratio as themultiple, we

would run the following regression:

Thebranddummyissettooneforthestrongbrand

name firms and to zerofor the weak brand name

companies. Thecoefficient don thebrand dummy

will capture the value effect of having a brand name.

• Proxymeasureofbrandname.Earlier,wearguedthat
  thevalueofabrandnamewasmostlikelytoshowup
  in higher operating margins. Introducing the
  operatingmarginintotheregressionwillcapturethis
  effect.

Presumably,companies withhigheroperatingmarginstrade
athighermultiplesofsales,andthecoefficientdonoperating
marginwillcapture theeffect. Usingageneric orevenan
industryaverageoperatingmargininthisregressionwillyield
an estimate of the EV/sales ratio for a generic firm.
Comparing the actual EV/sales ratio of a brand name
companytothispredictedvaluewillgeneratethebrandname
value:

ILLUSTRATION 12.4: Estimating the Value of Brand
Name—Relative Valuation Approach