What Are Intangible Assets And How Are They Appraised?
Appraising assets is an integral part of equipment auction as well as liquidation of a company. However, the process for appraising intangible assets is different from their tangible counterparts such as heavy machinery and equipment. This blog will address numerous ways to appraise intangible assets.
What Are Intangible Assets?
Intangible assets are defined as any asset that has no physical, tangible form, but holds significant value to the owner. These assets can be broadly classified into two categories, identifiable tangibles and value enhancement.
Identifiable Tangibles: Intellectual Property (IP), contracts, and trademarks fall under this category. Basically, these are assets that can be sold separately from the main business or company.
Value Enhancement: These are intangible assets tied directly to the valuation of a company or an organization. Work processes, workforce, and skillful management fall under this category.
Evaluating Intangible Assets
Here are 5 primary ways to evaluate intangible assets:
1. Relief From Royalty
In this valuation method, the hypothetical royalty rate of an intangible asset is calculated to discern if owning the property is more financially beneficial. Therefore, any business acquiring the property doesn’t have to pay for its usage. This type of evaluation is primarily observed for trademarks and software.
2. With And Without Method
In this method, the discounted cash flow is calculated in two different scenarios, one where the enterprise or company has acquired the intangible asset and one where the company has not. Discounted cash flow in simple terms is the evaluation of a business based on the potential cash flow it can generate in the future. Hence, if the discounted flow with the asset is higher, then it is considered a worthwhile investment.
3. Multi-Period Excess Earnings Method
It is similar to the With And Without Method with one major distinction. In the former, the discounted cash flow is calculated for an enterprise as a whole, whereas for MPEEM, the cash flow is isolated to only the one intangible asset in question. Therefore, this method is suitable in scenarios where only one asset is being appraised.
4. Real Option Pricing
Certain intangible assets don’t generate value currently but have the potential to do so in the future. These types of assets are evaluated using real option pricing. Patents are an excellent example of such a case.
5. Replacement Cost Method Less Obsolescence
In the case of the Replacement Cost Method Less Obsolescence, the cost of creating an intangible asset is considered instead of purchasing it, and how its value might depreciate in the future.
In summary, by implementing these 5 evaluation methods, the fair market value of any type of intangible assets can be determined.
Infinity Asset Solutions is a pioneer in the field of managing the liquidation of companies, receivership, bankruptcies, surplus equipment, and more. With over eight decades of collective experience, we have helped countless clients through this process, apart from conducting and organizing equipment auctions, which is our forte. Contact us today to learn more about our wide range of services.
