Business Valuation Methods

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Business Valuation Methods
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Valuation Practice

• Valuation is the practice of estimating a defined
  monetary value for a single or pooled intangible
  asset
• Valuation processes are performed either for
  transactional (such as commercial activities) or
  notational (such as accounting activities)
  purposes.
• Three main approaches to valuation exist (cost,
  market income approaches), each of which have
  specific strengths weaknesses, and therefore
  answer different needs

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Valuation in practice General

• A valuation process is structured in similar
  manners (tasks), whichever approach (cost, market
  and/or income) is chosen
• The different tasks include for such process
• Objective definition
• Standard of value selection
• Appraised asset description
• Valuation date or period selection
• Valuation approach(es) selection and related
  calculations
• Results reporting
• Always remember that a value is subjective,
  whereas a price is objective

Data collection analysis
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Valuation in practice Cost approach

• Cost approach Measure the value of an
  intangible asset by taking into account all
  relevant occurring costs and investments related
  to the appraised asset
• Historic costs accounting all costs (effective
  and sunk) directly related to the appraised asset
  (such as securing, research, development, and
  licensing-in costs)
• Replacement costs valuing the costs for buying
  an asset bringing the same utility than the
  appraised one
• Reproduction costs valuing the costs induced in
  creating, at the time of the appraisal, a similar
  asset based on actual knowledge
• Cost approach is generally used in situations of
  high uncertainty and limited information exist

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Valuation in practice Market approach

• Market approach Value consists in the price of
  a comparable asset in a similar market
  transaction
• Market approach relates to the quantification and
  adjustment of pricing multiples in order to
  create theoretical comparable conditions
• Lack of active and transparent market for IP
  transactions and market dynamics have to be taken
  into account in the process

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Valuation in practice Income approach

• Income approach Measure the value of an
  intangible asset by reference to the expected and
  actualized benefits, incomes or saved costs over
  the remaining life of the asset
• Such prospective-based quantification of
  financial flows needs to take into account
  various risk-related factors such as
• Endogenous Extend of IP protection, nature of
  competition,
• Exogenous Substitute product development risks,
  maturity of market,

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