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

(Hop HipldF0AV) #1

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

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