Attachingavaluetobrandnamemaymakeaccountantsfeel
betterabouttheirmeasurementsofasset value,butitoften
provides little information to investors.
Human Capital
Ratherthanrepeatwhatwassaidaboutbrandname,wecan
mapouthowwecanapplytheapproachesdevelopedtovalue
brandnametovalueotherintangibleassetsthatalsogenerate
valuefortheentirefirm.Onesuchassetishumancapital.A
firm with a well-trained, loyal, and intelligent workforce
shouldbeworthmorethananotherwisesimilarfirmwitha
lessexpertworkforce.Thisisespeciallytrueforconsulting
firms,investmentbanks,andotherentitiesthatderivemostof
their value from human capital.
- Historic cost approach. With brand name, we
considered advertising expenses to be the
determining factor. Withhuman capital, we would
consider recruiting, training, and employee benefit
expenses as the determining force. As with brand
name,firmsmayneedtoinvestforyearsinhuman
capital beforetheinvestmentpays off,but we can
attach an accounting value to human capital by
assuming an amortizable life and collecting
information on employee expenses for that period. - Discounted cash flow model. We can value the
humancapitalinvestedinacompanybycomparing
thevalueofthatcompanywiththevalueofageneric
company in the same business. Finding a generic
companywithregardtohumancapitalcanbemore
difficultthanfindingonewithregardtobrandname.
After all, every consulting firm believes that its