Estimating the value of intangible assets of a company is no easy task. Intangible assets are intellectual property, brand equity, human capital, and other non-physical assets. They are extremely important to the success of a company, yet they can be hard to measure.

The most important thing to keep in mind when estimating the value of a company’s intangible assets is that it must be done with the utmost accuracy. Intangible assets can be the difference between a company’s success or failure, so it’s important to take the time to get the estimation right.

The first step in estimating the value of a company’s intangible assets is to identify the assets. This includes intangible assets such as intellectual property, brand equity, patents, trademarks, copyrights, and more. Each of these assets may have different values, so it’s important to identify and understand the individual values of each asset.

To identify the intangible asset it is important to recognize that the categorization of intangible assets which can be divided into two distinct categories – legal and economic benefits.

Legal Benefits of Intangible Assets

The legal benefits of intangible assets are the rights and benefits associated with owning and/or using the asset. These benefits can be divided into two primary categories – exclusive rights and financial benefits.

Exclusive Rights: Exclusive rights refer to the right to exclusively own, use, and profit from the asset. These rights can be established through legal ownership, such as patents or trademarks, or through the creation of contracts. The exclusive rights associated with intangible assets can be very valuable and can provide a competitive advantage to businesses.

Financial Benefits: Financial benefits refer to the financial value of owning and/or using the asset. This can include royalty payments, licensing fees, and other financial rewards associated with the asset.

Economic Benefits of Intangible Assets

The economic benefits of intangible assets are the increased revenues and profitability associated with owning and/or using the asset. These benefits can be divided into three primary categories – economic value, competitive advantage, and strategic value.

Economic Value: Economic value is the value associated with the asset in terms of cash flows, equity value, and tax savings. Cash flows refer to the income generated from the asset, while equity value is the value of the asset in terms of ownership. Tax savings refer to the tax benefits associated with the asset, such as lower taxes due to the depreciation of the asset.

Competitive Advantage: Competitive advantage refers to the ability to use the asset to create a competitive edge in the marketplace. This can include the development of new products or services, increased brand recognition, and improved customer relationships.

Strategic Value: Strategic value refers to the ability to use the asset strategically to gain a competitive advantage. This can include the ability to enter new markets, acquire other businesses, or form strategic alliances.

Once the intangible assets have been identified, the next step is to determine the market value of each asset. To do this, it’s important to understand the current market conditions and trends for each asset. For example, if an asset is related to technology, it’s important to consider the current state of the technology market and the potential growth in the future.

After the market value of each asset has been determined, the next step is to determine the fair value of the intangible assets. This can be done using various methods such as the income approach, market approach, and cost approach. Each of these approaches takes into account different aspects of the asset and the current market conditions.

The Three Main Methods for Estimating Intangible Asset Value 

1. Cost Approach The cost approach is the most basic method for estimating the value of a company’s intangible assets. This approach is based on the historical cost of acquiring the asset. It takes into account the cost of development, marketing, and other costs associated with the asset. This approach is most useful for estimating the value of assets that have been acquired in the past. 

2. Market Approach The market approach is an indirect method for estimating the value of intangible assets. It is based on the price at which similar assets have recently been sold. This approach can be used when there are no similar assets available or when the assets are very new. 

3. Income Approach The income approach is used to estimate the potential future income from the intangible assets. This approach takes into account the expected future earnings from the asset, such as royalties or licensing fees. This method is best used for estimating the value of assets that are expected to generate future income. 

Tips for Accurately Estimating the Value of Intangible Assets 

1. Research Other Companies: When you’re estimating the value of intangible assets, it’s important to research other similar companies and their assets. This can give you a better understanding of the value of similar assets and how they’re valued in the market. 

2. Consult Professionals: It’s always a good idea to consult with an accountant or other financial professionals when estimating the value of intangible assets. They can provide an accurate estimate and provide valuable insights that you may not be aware of. 

3. Understand the Asset: When estimating the value of intangible assets, it’s important to understand the asset and its potential worth. This means researching the asset and understanding its potential uses, life cycle, and other factors that could impact its value.

Finally, the value of the intangible assets can be estimated using a combination of the market value and fair value of the assets. This is done by combining the two values and adjusting them based on the risks associated with the asset. This is a complex process that must be done carefully to ensure the most accurate estimate.

Estimating the value of intangible assets of a company can be a daunting task. However, with the right approach and the proper understanding of the asset, it’s possible to accurately estimate the value of the assets. This can help ensure the success of the company and help it reach its full potential.