In today’s economy, intangible assets like brand and goodwill have become an essential part of a company’s value. Unlike tangible assets such as property or equipment, intangible assets are not physical assets and are harder to value. This article will discuss how to value intangible assets like brand and goodwill and why it is crucial for companies in Singapore.
What are intangible assets?
Intangible assets are non-physical assets that a company owns and are not easily quantifiable. Some examples of intangible assets are brand names, trademarks, patents, copyrights, customer relationships, and goodwill. These assets can generate revenue for the company, contribute to its value, and are crucial to its success.
Why is valuing intangible assets important?
Valuing intangible assets is crucial for several reasons. First, it helps companies to know the actual value of their assets, which is vital when making investment and financing decisions. Second, it helps companies to determine the amount of goodwill they need to pay when acquiring another business. Third, it enables companies to report their assets accurately in financial statements.
How to value intangible assets
There are several methods for valuing intangible assets. Some of the most commonly used methods are:
- Income approach – This approach estimates the value of the asset by determining the present value of future cash flows it will generate. For example, the brand name of a company can generate revenue for many years, and the income approach helps determine the value of that revenue stream.
- Market approach – This approach estimates the value of the asset by comparing it to similar assets that have been recently sold. For example, if a trademark is similar to one that has recently sold, the market approach helps determine its value.
- Cost approach – This approach estimates the value of the asset by determining the cost to recreate or replace it. For example, the cost of developing a new brand name can help determine the value of an existing one.
Valuing intangible assets like brand and goodwill is crucial for companies to make informed investment and financing decisions, determine the amount of goodwill they need to pay when acquiring another business, and report their assets accurately in financial statements. There are several methods for valuing intangible assets, and it’s essential to choose the one that suits your business best. By understanding the value of your intangible assets, you can make informed decisions that can benefit your business in the long run.