• Market approach - The market approach is a valuation method that estimates value based on actual market transactions. The market approach requires the collection of market data from comparable transactions and analysis of the data to estimate the value of the brand or intangible through comparison and correlation.
• Income approach - This approach considers income and expense data relating to the intangible and stimates value through a capitalization process. Capitalization relates income (usually a net income figure) and value by converting an income amount into a value estimate. This process may consider direct relationships (capitalization rates or multiples), yield or discount rates (reflecting measures of return on investment), or a combination of these. There are two main methodologies falling under the income approach viz.
• Multi Period Excess Earnings Method
• Relief from Royalty Method
• Cost approach - It is possible to value intangible assets on the basis of their ‘cost to create’ or what it might cost to recreate a similar asset, with equivalent consumer appeal or commercial utility. For brands, such costs typically include naming, research and product design, packaging, design, advertising and promotional spend. A portion of promotional spend is, by nature, short-term maintenance spend; only part of it creates long-term brand value. Consideration is given to all costs (in current terms) associated with replacing or replicating the asset, less an allowance for any depreciation. The main drawback of the cost to recreate approach is that it fails to account for the economic benefit to the asset owner through its use. There may be little or no correlation between the development costs and the impact on financial performance (revenues and profits). Once created, the value of the asset to its owner may be significantly higher than the cost to create it. The cost to create approach may therefore understate the price at which the asset would change hands between willing parties in an arm’s length transaction.
