Understanding how to value intangible assets is crucial in today’s economy. Whether you’re planning to sell your company, attract investors, or make better strategic decisions, knowing the worth of your intangible value is key. This guide explores the best asset valuation methodology for intangibles and shows you how our expert services can help.
Introduction: Why Intangible Assets Matter More Than Ever
In today’s digital and service-driven economy, a significant portion of a company’s value often lies in what you can’t physically touch. Patents, trademarks, customer relationships, software, and brand recognition may not show up on your balance sheet like a piece of machinery or a building would, but they can drive revenue, reduce costs, and establish a competitive edge.
Still, many business owners don’t know how to accurately assess these invisible drivers of success. If you’re unsure how to value intangible assets, you’re not alone. In this blog, we’ll break down what intangible assets are, how they differ from tangible assets, and the proven methods for valuing intangible assets.
We’ll also answer questions like: “Which of the following is an intangible asset?” and give you a clear, actionable path to get a precise and professional valuation of your business.
Understanding Intangible Assets vs Tangible Assets
Let’s start with the basics. What are intangible assets, and how do they differ from tangible ones?
Tangible assets are physical and measurable. These include:
- Buildings
- Equipment
- Inventory
- Land
Intangible assets, on the other hand, are non-physical assets that still hold value. Examples include:
- Trademarks
- Copyrights
- Patents
- Customer lists
- Software
- Brand reputation
So, when we ask, “Which of the following is an intangible asset?” and offer options like “trademark,” “truck,” or “warehouse,” the correct answer is trademark.
While tangible assets often appear directly on financial statements, intangible assets are less visible but can be far more valuable—especially in tech, media, healthcare, and professional services industries.
Why Valuing Intangible Assets Matters
Valuing intangible assets matters for multiple reasons:
- Mergers & Acquisitions: Buyers want to know the full value of your business, not just what’s on paper.
- Investment & Financing: Investors often assess your intangibles to decide whether to fund your growth.
- Strategic Planning: Understanding your intangible value helps in setting pricing, expanding markets, and increasing shareholder value.
- Litigation & IP Disputes: Accurate valuation is critical in legal cases.
- Compliance & Reporting: Certain accounting standards require the recognition and reporting of intangible assets.
If you’re not accounting for these assets properly, you’re likely underestimating your business’s worth.
Top Methods for Valuing Intangible Assets
So, how do you go about valuing intangible assets? There are several proven asset valuation methodologies commonly used by valuation professionals. Let’s explore them below.
1. Cost Approach
This method calculates how much it would cost to recreate the intangible asset. It includes:
- Direct costs (e.g., development, legal fees)
- Indirect costs (e.g., opportunity costs, overhead)
Best for: Internally developed software, training programs, or customer databases.
Pros: Straightforward and grounded in actual expenditures.
Cons: Doesn’t account for future income or market potential.
2. Market Approach
This method looks at comparable market transactions involving similar intangible assets. Think of it like real estate comps but for IP or branding assets.
Best for: Trademarks, patents, or licenses with known market comparables.
Pros: Reflects actual market conditions.
Cons: Can be hard to find comparable data.
3. Income Approach
This is the most common and reliable method for intangibles. It projects the future income attributable to the asset and discounts it to present value.
Sub-methods include:
- Relief-from-royalty method
- Excess earnings method
- Multi-period excess earnings method (MPEEM)
Best for: Patents, customer relationships, and brands.
Pros: Captures the future value.
Cons: Requires accurate forecasting and expertise.
These methods form the foundation of any robust intangibles valuation and can be tailored based on industry, asset type, and business model.
Deep Dive: Income-Based Valuation of Intangible Assets
Let’s look more closely at the income approach, since it’s so widely used in valuing intangible assets.
Relief-from-Royalty Method
This method estimates the value of an asset by calculating how much it would cost to license it if you didn’t own it.
Example: You own a software product. Rather than pay 10% of revenue to license similar software, you “relieve” yourself of that royalty by owning the IP.
Excess Earnings Method
This approach isolates the income directly attributable to a single intangible asset by deducting returns for all other contributing assets.
Example: You calculate how much extra profit is due to your customer list, above and beyond the normal return on equipment and labor.
Multi-Period Excess Earnings Method (MPEEM)
MPEEM extends the excess earnings method over multiple years, making it ideal for long-life intangibles like patents or customer relationships.
Each of these methods requires:
- Accurate forecasting
- Discount rate selection
- Risk assessment
That’s where professional asset valuation becomes essential.
Key Factors Affecting Intangible Asset Valuation
When conducting an asset valuation for intangibles, the following factors come into play:
- Legal Protection: Is the asset patented, trademarked, or copyrighted?
- Economic Life: How long will it continue to generate income?
- Market Demand: Is there a market for the asset or related products?
- Relevance to Business: How central is it to revenue generation?
- Obsolescence Risk: Is it likely to become outdated?
These factors help refine the methods for valuing assets and ensure you don’t over- or under-estimate their worth.
Common Types of Intangible Assets to Value
Here are the most frequently appraised intangible assets:
- Patents: Exclusive rights to innovations or processes.
- Trademarks & Trade Names: Brand identifiers with customer loyalty value.
- Copyrights: Rights to original works like music, writing, or software.
- Customer Relationships: Long-term recurring revenue streams.
- Franchises & Licenses: Rights to operate under a known brand or use proprietary tech.
- Proprietary Software: Custom-developed tech not available on the market.
- Goodwill: The excess of purchase price over the fair value of identifiable net assets in an acquisition.
Knowing which of these assets your business holds is the first step toward effective intangibles valuation.
Challenges in Valuation of Intangible Assets
Valuing intangible assets isn’t always straightforward. Challenges include:
- Lack of market comparables
- Difficulty separating asset-specific income
- Limited historical data
- Subjective risk assessments
- Complex legal ownership structures
These challenges make it essential to work with experienced professionals who specialize in asset valuation methodology.
Intangible Value in Different Industries
Every industry has different drivers of intangible value:
- Tech & SaaS: Proprietary software, code libraries, user data
- Healthcare & Pharma: Patents, research data, FDA approvals
- Retail & E-commerce: Brand equity, customer loyalty programs
- Professional Services: Human capital, client lists, institutional knowledge
Understanding your industry’s unique intangible assets helps in selecting the most effective methods for valuing assets.
How Our Expert Services Help You Accurately Value Intangibles
With over 30 years of experience in business valuation, we specialize in uncovering the full worth of your intangible assets. Our process includes:
- In-depth discovery of all intangible assets
- Selection of the right valuation method (or combination)
- Financial modeling and risk-adjusted forecasts
- Legal and industry-specific analysis
- Clear, audit-ready reports for stakeholders
Whether you’re preparing for a sale, raising capital, or conducting annual strategic planning, we ensure your intangible value is fully understood and leveraged.
FAQs: Valuation of Intangible Assets
Q: Which of the following is an intangible asset?
A: Examples include trademarks, patents, brand equity, software, and customer lists. Unlike tangible assets, these don’t have physical form.
Q: Why is intangible asset valuation important?
A: It uncovers hidden value, supports better decision-making, and is essential in M&A, legal, and financial reporting contexts.
Q: Can I value intangible assets myself?
A: While it’s possible to estimate using cost or simple income methods, professional valuation ensures accuracy, credibility, and regulatory compliance.
Q: How often should I value my intangible assets?
A: At major business milestones: funding rounds, mergers, annual strategic reviews, or before selling your business.
Q: What is the most accurate asset valuation methodology for intangibles?
A: The income approach, particularly the multi-period excess earnings method, is often the most reliable for revenue-generating intangible assets.
Call to Action: Get a Clear Valuation of Your Intangible Assets Today
Don’t leave the true value of your business in the shadows. If you’re ready to discover the full scope of your company’s intangible value, our expert team is here to help.
Book your personalized asset valuation consultation today and gain clarity, confidence, and leverage in every business decision you make.