Michael D. Moberly November 4, 2009
The frustrations and skeptisims regarding the valuation of intangibles frequently expressed by members of the business asset valuation (accountantancy, value investor) community are not wholly without some justification/merit. But, those frustrations – skepticisms do tend, I find, in a number of instances, to be focused on a single (intangible) asset, not necessarily all intangible assets.
For example, in a recent (October 5th) post at The Value Investor titled ‘Red Flags for Investors: Intangible Assets’ the author expresses dislike for “giving financial credence to a resource that he/she can’t see, can’t touch, and can’t prove generated a cent of revenue”. Again, a quite understandable perspective.
But, then the author proceeds to say that “surely the brand Coca-Cola carries some value in its name alone, i.e., if a consumer is provided with the option of buying Coke or a noname (generic) product for the same price, there will be a pronounced inclination (the author states) towards the Coke product”. Case made! There is value in intangible assets, i.e., the brand name Coke delivers distinguishable value and revenue.
So, perhaps the more appropriate question may not be whether intangible assets, in this case ‘brand’, has measureable value or should be assigned a specific dollar value on a balance sheet. Rather, commence the asset valuation process by identifying – separating – distinguishing how much independant value-revenue is specifically attributable to the – a brand, apart from other company assets.
And, perhaps drilling down a little deeper, a consumers’ motivation – presumed inclination to purchase the Coca-Cola product over a generic brand, when they’re both offered at the same price, translates as ‘brand value’. Again, it seems to me, case made! There is value in the intangible asset of brand.
After all, intangible assets are unique blends (combinations, collections) of assets, activities, processes, relationships, history, and market conditions that a company (can) exploit to differentiate itself from its competitors, and thus, create value. (Michael Porter)
With the aid of Weston Anson’s ‘The Intangible Asset Handbook’ (see October 12th book review at this blog) I have identified 15+/- categories of intangible assets. Each (category) of course, has multiple (distinctive, separate) sub-categories, and each carries a distinguishable and contributory value to a company, at least it should, if effectively managed.