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How to Value Intangible Assets

One of the effective and efficient ways of doing a valuation for your intangible assets is to first understand the definition of intangible assets. In a simple definition, an intangible asset is any kind of asset that is not monetary and cannot be seen or be touched because it does not have a defined physical form. You cannot convert an intangible asset into cash. The following are some of the most common known intangible assets; trademarks, intellectual property, the list of your customers, brands and so on. Many people use intangible assets with ‘goodwill’ assets but in the real sense, they are very different. These are normally recorded on the company’s balance sheet once it acquires another separate company.

Secondly, when you want to value your intangible assets, it is prudent to involve an expert so that you do not mess things up. The services of a valuator are important especially when you are planning to sell or purchase a business. The evaluator has the necessary experience and skills to establish the exact value of the business including the intangible assets. This can help to avoid unnecessary disputes between two parties i.e. the buyer and the seller. You should not just pick a random valuator that you come across. You need to be sure that he/she is qualified enough for the job and you need to ask for references. It is also wise to get quotes from several other experienced.

You also need to understand the process of the valuation of the intangible assets if you really want to be sure of doing the correct valuation. The cool thing about valuators is that they normally do the valuation of the whole business or company plus the intangible assets. One of the most popular methods that are normally used to do the calculation includes the earnings before interest, taxes, depreciation, and amortization (EBITDA). This method is normally used to determine the ability of a business, company, or organization to produce operating earnings. The following factors normally determine multiple that is right for a company; market conditions, growth prospects, and the multiples used in the comparison of companies. Goodwill which is normally gotten by subtracting the value of net assets from the business valuation can further be broken down into intangible assets.

Lastly, what you need to do in order to find the value of intangible assets is to carry out a specific valuation. There are several methods used by valuators to find the value of intangible assets. The first method is known as the excess earning method. This is one of the most accurate methods that valuators use to predict the cash-flow an asset after the tax has been deducted. The method is complicated and complex but is the right one to put into use for accuracy purposes. The second method is called the relief from royalty method. This method is normally used by evaluators to assess the expected revenue from an asset. After the revenue has been determined, the taxes are subtracted and then apply the royalty rates. The third and last method is known as the cost method. The valuators normally use this method to find the cost of developing an asset and the possible return of investment on that particular asset.

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