How do I value an asset
The valuation of intangible assets
by Dipl.-Kffr. Dr. Anke Nestler
The importance of intangible assets in companies has changed dramatically. While in the past physical assets such as B. Land or machines, the highest value was assigned within a company, today there is a growing awareness of the value contribution of intangible assets. The non-compliance in the past may be due, among other things, to the fact that the internally generated intangible assets are subject to an accounting ban under the German Commercial Code. As a result, these assets do not even appear on a company's balance sheet. With the increasing influence of international accounting standards (in particular the International Accounting Standards "IAS") on German companies, the accounting of intangible assets is becoming more and more important.
1. The intangible asset
Intangible assets are, for example, patents, trademarks, company names, utility models and designs, copyrights and derived exploitation rights, Internet domains and software. In addition to these "classic" intangible assets, there are also a number of other factors in a company that are intangible but can also represent an asset at the same time. This includes in particular know-how, procedures and processes, developments, databases, customer base and cooperation agreements.
A separate value can often be assigned to all of these assets.
2. Background and purpose of the evaluation
The valuation of intangible assets can be necessary for different reasons.
Are z. If, for example, a company or part of a company is sold as part of a transaction, it is precisely the intangible assets that can play an important role in quantifying a reasonable purchase price. In some cases, only individual assets (e.g. trademark rights) are sold, for the price of which a separate valuation is necessary.
However, it may also be necessary to determine values for individual assets in the course of internal restructuring. A well-founded assessment to avoid tax risks plays an important role in cross-border transfers of intangible assets from one group company to another. By selling brands to an independent company, hidden reserves can be uncovered and depreciation potential can be created. The use of the trademark rights, e.g. by the sales company, can be agreed through a license agreement. The evaluation then serves as the basis for determining the purchase price and deriving an appropriate license rate.
The question of the appropriateness of the underlying license fees also regularly arises when structuring intra-group transfer prices for the transfer of rights, e.g. when using patents or brand names. A well-founded valuation of the assets concerned based on market prices is an essential prerequisite for tax recognition of transfer prices.
3. Approach to evaluation and evaluation methods
In the valuation of intangible assets - unlike, for example, in the valuation of companies or parts of companies - the first priority is the delimitation and identification of the unit to be valued. In addition, the value of the intangible asset is directly linked to the scope of the power of disposal. When evaluating brands, for example, the question of a discount arises if exploitation rights lie with different owners or lawsuits for infringement of property rights are pending. An evaluation of intangible assets therefore always requires a thorough examination of the legal situation of property rights.
The service life of the assets must also be assessed separately. While company valuation is usually based on the continuation of the company ("going concern premise"), the lifespan of intangible assets can be limited by legal, economic or technical circumstances.
There are basically three approaches that can be considered as common methods for the financial valuation of intangible assets:
|Market value-oriented procedures|
4. Market value-oriented procedures
When applying a market value-oriented valuation method, indicators for the value of the intangible asset are derived on the basis of actual prices that can be achieved on the market.
The problem with this method is that the market prices of comparable intangible assets are often not even known. The sale of rights to well-known brands in particular is partially communicated to the public. However, there is seldom a reference to the agreed selling price or the underlying, value-relevant framework conditions (e.g. sub-licenses, buyback rights, regional scope). It is even less likely to obtain useful information on market prices for less marketable products, such as customer bases, self-developed software or databases.
Against this background, market value-oriented procedures in their pure form cannot usually be applied in practice.
However, market data are included in the valuation with the help of the so-called license price analogy (see in more detail in the explanation of the profit-oriented method). In practice and in certain industries, it is common to transfer exploitation rights (e.g. use of patents, brands, domains and software) to third parties for a license fee. These license rates negotiated on the market basically contain the willingness of one party to pay for the use of a brand, for example.
5. Cost-oriented procedures
Cost-oriented methods are based on the estimated reproduction costs for the intangible asset to be valued. The historical costs on the one hand and the replacement costs on the other hand can provide clues.
When making an assessment based on historical costs, it is important to carefully analyze the costs actually incurred in creating the intangible asset. When evaluating self-developed software, for example, the costs caused by the development (especially personnel costs) would have to be determined. If necessary, the costs are to be adjusted for efficiency losses or to be supplemented by further cost components (e.g. investments). The historical costs are to be indexed to the valuation date with a suitable factor.
The advantage of this approach is that the data is usually with the company that owns the asset. On the other hand, the past costs attributable to the asset to be valued can often no longer be identified so clearly at the time of valuation.
As an alternative to the indexed historical costs, the expected current replacement costs for the intangible asset can be calculated. In the case of a brand, for example, the costs a company would have to spend introducing a comparable brand at the time of the valuation could be estimated.
It should be noted that the cost-oriented methods do not make any statement about the advantages of investing in an intangible asset. As a result, the cost-based methods for the financial valuation of intangible assets are of limited informative value. Although the determined values offer important clues for possible value limits, they must be supplemented by further considerations and analyzes.
6. Income-oriented procedures
In the income-oriented method, the value is calculated from the future financial surpluses that can be allocated to the intangible object to be valued. In the profit-oriented method, there are different approaches to how the relevant financial surpluses are derived. A procedure that is often used in practice is the license price analogy mentioned above. The license price analogy calculates which license fees a company would have to pay if it did not own the relevant intangible asset, but had to license it. The value is then calculated as the present value of the future license fees saved.
In detail, various test steps are required when applying the license price analogy, which can only be addressed briefly here. First of all, the license rates agreed in practice for a suitable product must be determined. These are to be examined to see whether they are suitable for the specific valuation case. Other important evaluation steps are the determination of the suitable reference base (e.g. the net revenue), the derivation of future results, the question of how taxes are taken into account and the determination of a suitable capitalization rate.
It should be noted that the valuation based on a profit-oriented valuation method reflects the investor's point of view most consistently. The profit-oriented valuation methods are therefore today in theory and practice the most recognized methods for the valuation of intangible assets.
7. Selection of methods in valuation practice
Essential criteria for the selection of the correct evaluation method are the comprehensibility and economic efficiency of the procedure as well as the objectivity of the value standards. For the valuation of intangible assets, there is basically no valuation standard comparable to company valuation, such as the standard for the valuation of companies of the Institute of Auditors (so-called IDW S1).
As a rule, the valuation of intangible assets is based on existing valuation standards for the valuation of companies. In individual cases, however, precise consideration is always required for the respective approach. Against this background, the procedure, the methods and the valuation premises for the valuation of intangible assets must be presented in detail in valuation reports.
The valuation of intangible assets is a discipline that is still relatively young and, compared to the valuation of entire companies, is subject to separate difficulties and is therefore correspondingly more complex. The wealth of experience gained from various evaluation projects is therefore very helpful for practical evaluation work. In addition, it is of great importance that current developments in valuation theory and practice with regard to the valuation of intangible assets are actively followed. Significant impulses come from the USA, which, due to its accounting standards, has been confronted with the valuation problem of intangible objects for much longer.
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