Valuation of intangible assets. Estimation of the value of intangible assets of an enterprise Methods for assessing intangible assets

For practical assessment of the value of intangible assets, experts recommend cost, income and comparative approaches, usually used in the assessment of other types of assets.

Income method

In accordance with the income approach, the value of an intangible asset is taken at the level of the current value of the benefits that the enterprise has from its use. An example is the royalty relief method, which is used to estimate the value of patents and licenses. Royalty is a periodic payment to the seller for the use of intellectual property. Typically the royalty is
5–20% of additional profit received by the enterprise that purchased the intellectual property. If the intellectual property is the basis of a new product (technology), the royalty may be
up to 50 %.

The income approach is based on the two most common methods: the discounted income method and the direct capitalization method. These are the most universal methods applicable to any type of property complexes.

Discounted income method involves the transformation, according to certain rules, of future income expected by the investor into the current value of the assessed intangible assets. Future earnings include:

· periodic cash flow of income from the operation of intangible assets during the period of ownership is the investor’s net income received from owning property (less income tax) in the form of dividends, rent, etc.;

· cash receipts from the sale of intangible assets at the end of the ownership period, i.e. future proceeds from the resale of intangible assets (less transaction costs).

The invested capital seems to grow on its own according to the rule of compound interest. In this case, you can specify a certain norm (rate) of income, which indicates the increase in a unit of capital after a certain period (year, quarter, month). In the discounted income method, the rate of return is called the discount rate. The value of intangible assets is determined by multiplying future income by the discount rate.

Direct capitalization method It is quite simple and this is its main and only advantage. However, it is static, being tied to data from one most representative year, and therefore requires special attention to the correct choice of net income indicators and capitalization ratios. Calculation of the current value of intangible assets using this method is carried out in three successive stages:

1. Calculation of annual net income.

2. Selecting a capitalization ratio. A company's capitalization ratio is usually calculated based on its discount rate. This ratio is usually determined by subtracting the expected CAGR from that company's discount rate. Consequently, a company's capitalization ratio is usually lower than its discount rate.

3. Calculation of the current value of intangible assets, which is determined by dividing the annual net income by the capitalization ratio.

Comparative method

The comparative approach is used when assessing the market value of intangible assets based on data on recently completed transactions with similar intangible assets.

The comparative approach can be used for those types of intangible assets, transactions for which are often carried out on the market. The initial information for calculating the value of an object is the sales prices of similar objects.

The method is based on the principle of substitution, according to which a rational investor will not pay more for a given object than the cost of a similar object available for purchase that has the same utility as the given object. Therefore, sales prices of similar objects serve as the initial information for calculating the value of a given object.

Calculations using methods using a comparative approach are carried out in the following stages:

Stage 1. Study the relevant market and collect information on recent transactions with similar objects in this market. The accuracy of the calculations largely depends on the quantity and quality of the information collected. When there is enough information, it is necessary to make sure that the objects sold are truly comparable to the intangible assets being valued in terms of their functions and parameters.

Stage 2. Verification of information. It is necessary to make sure, first of all, that prices are not distorted by any extraordinary circumstances accompanying the transactions. The reliability of information about the date of the transaction, physical and other characteristics of similar objects is also checked.

Stage 3. Comparing the valued object with each of the similar objects and identifying differences in date of sale, consumer characteristics, location, design, presence of additional elements, etc. All differences must be recorded and taken into account.

Stage 4. Calculation of the value of these intangible assets by adjusting prices for similar intangible assets. To the extent that the valued object differs from a similar one, adjustments are made to the price of the latter in order to determine at what price the object could have been sold if it had the same characteristics as the object being valued.

Cost method

Based on the cost approach, the cost of reproduction is determined. When using the cost approach, intangible assets are valued as the sum of the costs of their creation, acquisition and implementation.

Although with the cost approach the assessed value may differ significantly from the market value, since there is no direct connection between costs and utility, nevertheless there are many cases when the cost approach is justified:

· for calculating property tax;

· for the purposes of insurance of individual components of property;

· during judicial division of property between owners;

· when selling property at open auction;

· for accounting of fixed assets;

· when revaluing fixed assets.

The main feature of the cost approach is element-by-element assessment, i.e. the assessed intangible assets are divided into component parts, an assessment is made of each part, and then the value of all intangible assets is obtained by summing the values of its parts. In this case, they proceed from the fact that the investor, in principle, has the opportunity not only to buy these intangible assets, but also to create them from separately purchased elements.

Depending on the nature of the intangible assets being valued, various methods of the cost approach are used. Therefore, here we are talking about the general sequence of calculations using this approach, performed in several stages:

Stage 1. Analysis of the structure of intangible assets and identification of their constituent parts (components), the value of which will be assessed differentially using various methods. If you need to evaluate the enterprise as a whole, and not just its intangible assets, then it includes such components as: fixed assets (land, buildings, structures, machinery and equipment), current assets, cash.

Step 2. Selecting the most appropriate valuation method for each component of intangible assets and performing calculations. To determine the value of a land plot, special methods are used, known from the theory of real estate valuation, or calculations are carried out based on prices per 1 m 2 used in calculating land tax.

Stage 3. Assessing the actual degree of wear and tear of intangible asset components. The term “wear and tear” in valuation theory is understood as the loss of the utility of an object, and, consequently, its value for various reasons, i.e. not only due to the time factor. This term is used in a different sense in accounting, where wear and tear or amortization is understood as a mechanism for transferring costs to the cost of production over the standard service life of an object.

Stage 4. Calculation of the residual value of the components of intangible assets and the total assessment of the residual value of all intangible assets. The residual value at the valuation date is obtained by subtracting the amount of accumulated depreciation from the value.

In relation to such objects as know-how and inventions, royalty payments serve as an annuity, i.e. amounts paid annually by the licensee enterprise to the owner of the know-how or patent (licensor), in accordance with the agreement concluded between them.

Royalties, acting as a determinant not of the value of intangible assets, but of the amount of remuneration, as a fixed percentage of profit, extends over the entire life cycle of these intangible assets.

The methodology for valuing intangible assets using royalties requires knowledge of the entire life cycle of an object, which can be almost impossible to actually predict. Moreover, it is usually impossible to reliably calculate the amount of profit for the entire life cycle of intangible assets due to the fact that, as a rule, it is not possible to justify the expected obsolescence of intangible assets. Therefore, the use of royalties to calculate the value of intangible assets appears to be ineffective.

It seems more correct to calculate the value of intangible assets using the mass of profits for a certain foreseeable period (only a few years). But it would be more reasonable to divide the profit received from the sale of these intangible assets equally between the seller and buyer of the intangible assets within a certain period, the owner of the intangible assets and the manufacturer of the products containing them.

The value of intellectual property is assessed using methods based on the income or cost approach. The use of a comparative approach here is very difficult, since these objects are original and often have no analogues.

Let's look at these approaches.

Income approach. The income approach is based on the two most common methods: the discounted income method and the direct capitalization method. These are the most universal methods applicable to any type of property complexes.

The discounted income method involves converting, according to certain rules, future income expected by the investor into the current value of the assessed intangible assets. Future earnings include:

periodic cash flow of income from the operation of intangible assets during the ownership period; this is the investor’s net income received from owning property (less income tax) in the form of dividends, rent, etc.;

cash proceeds from the sale of intangible assets at the end of the ownership period, that is, future proceeds from the resale of intangible assets (minus the costs of processing the transaction).

To understand the essence of the discounted income method, we will touch upon such concepts as compound interest, accumulation, discounting and annuity.

The direct capitalization method is quite simple and this is its main and only advantage. However, it is static, being tied to data from one most representative year, and therefore requires special attention to the correct choice of net income indicators and capitalization ratios. Calculation of the current value of intangible assets using this method is carried out in three successive stages:

Calculation of annual net income.

Choice of capitalization ratio. The capitalization rate must be linked to the previously selected indicator of capitalized income.

Calculation of the current value of intangible assets.

Comparative approach. The comparative approach is used when assessing the market value of intangible assets based on data on recently completed transactions with similar intangible assets. The method is based on the principle of substitution, according to which a rational investor will not pay more for a given object than the cost of a similar object available for purchase that has the same utility as the given object. Therefore, sales prices of similar objects serve as the initial information for calculating the cost of a given object.

Calculations using methods using a comparative approach are carried out in the following stages.

determining the cost of additional elements through paired comparisons;

determination of correction factors that take into account differences between objects in individual parameters;

calculation of cost based on specific cost indicators, common for determining a group of similar objects;

calculating value using an income multiplier;

cost calculation using correlation models.

The cost of additional elements is determined by comparing prices for two groups of objects: those with and those without these elements. For example, in this way you can determine the cost of auxiliary devices for machines, auxiliary structures for buildings, etc.

The determination of adjustment factors is used when the compared intangible assets differ in individual technical and dimensional parameters. The quality and level of functioning, comfort, ease of maintenance - all these characteristics can be taken into account in the cost of introducing appropriate increasing or decreasing coefficients.

Cost calculation based on specific indicators is a method used in cases where the objects being compared are functionally homogeneous, but differ significantly in size and power. In this case, unit prices for the selected unit are displayed. For example, to calculate the cost of a land plot, the market value of 1 m2 is determined in advance, to calculate the cost of a building - the price of 1 m3 of construction, to calculate the cost of equipment - the price of 1 kg of structural mass, etc.

A method of calculating value using an income multiplier, which is the ratio of the price of a similar object to the annual income of its owner; applicable to those intangible assets whose operation generates income. If the intangible assets of the enterprise as a whole are assessed, then the P/E multiplier is applied (price to earnings per share), if intangible assets that include only the enterprise's real estate are assessed, then the calculation is carried out using the gross rental income multiplier GRM, which is the ratio of the price of a similar object to the gross rent of its owner. The calculation procedure is as follows. For each similar object, the income multiplier is calculated, then the average value of the multiplier is derived for the entire group of objects. The cost of a given object is obtained by multiplying the average multiplier by the projected amount of income from this object.

Calculating the value of intangible assets using a correlation model is possible in the case when there is a sufficiently large number of similar objects and it is possible, by statistical processing of information, to build a correlation model that describes the dependence of the probable price of an object on 2-2 of its main parameters.

Cost-effective approach. Based on the cost approach, the cost of reproduction is determined. Although with the cost approach the estimated value may differ significantly from the market value, since there is no direct connection between costs and utility, nevertheless there are many cases when the cost approach is justified (for example:

to calculate property tax,

for the purpose of insuring individual components of property,

during the judicial division of property between owners,

when selling property at public auction,

for accounting of fixed assets;

when revaluing fixed assets.)

In the conditions of Russia, where the stock market is just being formed and there is almost no market information, the cost approach is often the only possible one.

The main feature of the cost approach is an element-by-element assessment, that is, the assessed intangible assets are divided into their component parts, an assessment is made of each part, and then the value of all intangible assets is obtained by summing the costs of its parts. In this case, they proceed from the fact that the investor, in principle, has the opportunity not only to buy these intangible assets, but also to create them from separately purchased elements.

Step 2. Selecting the most appropriate valuation method for each component of intangible assets and performing calculations. To determine the value of a land plot, special methods are used, known from the theory of real estate valuation, or calculations are based on prices per 1 m2 used in calculating land tax.

Stage 3. Assessing the actual degree of wear and tear of intangible asset components. The term “wear and tear” in valuation theory is understood as the loss of the utility of an object, and therefore its value, for various reasons, that is, not only due to the time factor. This term is used in a different sense in accounting, where wear and tear or amortization is understood as a mechanism for transferring costs to the cost of production over the standard service life of an object.

In valuation practice, two types of wear and tear are distinguished: physical wear and tear and obsolescence.

Physical wear and tear means the loss of the physical capabilities of an object during its operation. Real physical wear and tear is assessed using the following methods:

by effective age;

according to indices of decline in consumer properties;

to reduce net income (profit) during operation.

Obsolescence characterizes the loss of competitiveness and, accordingly, cost, due to the appearance on the market of new, more advanced analogues. Obsolescence is usually divided into:

technological,

functional,

Technological wear and tear is a consequence of the impact on the cost of scientific and technological progress in the field of design, technology, and materials.

Functional wear and tear is a consequence of a decrease in the functionality of the assessed object in comparison with a new analogue.

External wear is manifested in the fact that an object at some point ceases to meet new requirements and restrictions, for example, for environmental reasons, safety, etc.

The main method for determining obsolescence is the method of comparison with a new, more advanced object.

In relation to such objects as know-how and inventions, the annuity is royalty payments, that is, the amounts annually paid by the licensee enterprise to the owner of the know-how or patent (licensor), according to the agreement concluded between them.

In fact, royalty is a remuneration to the seller, determined at a fixed rate, a percentage of income, profit or cost, depending on the agreement of the parties to the transaction. Typically, royalties are taken in the amount of five to twenty percent of the additional profit received by the enterprise that purchased and used intangible assets. But this is only true for large-scale production and for cases where, in addition to these intangible assets, several others are also involved in the production technology of a new or updated product. When intangible assets in the technology under consideration are the only and main element of novelty, originality or efficiency of the manufactured product, then these percentages significantly underestimate the actual value of intangible assets.

Royalty as an element of calculating the amount of remuneration has a deep economic meaning, stimulating the owner of intangible assets to support its implementation in production, constantly adapting it to changing production conditions and market conditions.

The royalty rate is such that payments under it are usually not a tangible loss for the manufacturer, and the owner of intangible assets is periodically accrued a relatively high amount. Therefore, royalty rates are defined, from the author’s point of view, as a compromise spontaneously formed and accepted in international practice between the interests of the manufacturer and inventor, owner and buyer. Moreover, this compromise historically took shape in times of complete dictatorship of the manufacturer and the relative weakness of the legal and market positions of inventors and owners of intangible assets. In the past, organizing the implementation of innovations was a big problem. And if at a given production site the patent owner was denied implementation, then, as a rule, there was extremely little chance of introducing intangible assets elsewhere.

Now the situation in the world is changing significantly in favor of owners of intangible assets:

various companies and firms organize systems for searching, generating and filtering useful ideas;

many venture capital firms are being created;

intangible assets are included in numerous investment projects;

Forward-thinking businessmen sell valuable patents only when absolutely necessary and as a last resort. Good ideas began to “well feed” their owners and turned into expensive goods.

The method for assessing the value of intangible assets used by the author differs from most known ones in that it is based on the principle of mutual and equal benefit for both parties to the transaction - the seller and the buyer, as well as on the principle of equal benefit received by the actual owner and those who will actually receive income from the use of intangible assets, but will not own them. This suggests that the value of intangible assets is determined by the author on the basis of half the net profit received from their practical implementation. Therefore, all the difficulties of the author’s calculations come down to determining the mass of net profit received from the practical sale of these intangible assets, determining the proportion of intangible assets in the mass of other assets affecting profit, and determining the calculation period. In this case, a wide arsenal of methods and techniques developed by other authors is used, including - if necessary - costly methods.

The problem of determining payments for the use of know-how, invention or other intellectual property is that investment is required to implement them into production. Net income from the use of know-how or invention is part of the net income from the implementation of a specific investment project. Therefore, first an investment project is developed and a business plan is drawn up, in which the expected annual net income is calculated. Then they allocate that part of the net income that can be attributed to the intellectual property used. The share coefficient used in this case is calculated taking into account the savings factor. Thus, the use of know-how or an invention increases the net income of the enterprise due to factors such as reducing production costs, increasing sales volumes, and increasing prices for products due to increased quality. It should also be borne in mind that the use of certain know-how can reduce the amount of income tax. Next, you need to decide what part of the calculated income will go to pay the owner (author) of the know-how or invention. This value will be used in the formula (+) as net income E.

The task is simplified if no investment is required. For example, when assessing the cost of a trademark purchased by an enterprise from another reputable company, it is enough to calculate the increase in the enterprise’s net income due to an increase in price and expansion of the sales market, but at the same time it is necessary to deduct additional costs for satisfying the requirements of the owner of the trademark. By the way, the cost of a trademark can be measured in a significant amount. Thus, the American company Dodge paid the Chrysler company 74 billion dollars for the acquisition of its trademark. The value of the Stolichnaya vodka trademark is estimated by experts at $400 million, which is equal to ten years of sales of vodka sold by our producers abroad.

Particular attention should be paid to the choice of discount rate. As already noted, the discount rate consists of the risk-free rate rbr and the risk premium rp, that is, r - rbr + rp.

When intellectual property objects are evaluated, the risk premium is chosen to be higher, since investments in these objects are highly risky.

The useful life of an intellectual property object n is assessed by the enterprise independently and depends on the aging period of the transferred knowledge (experience) and the possible disclosure of its confidentiality. This period corresponds to the twenty-year validity period of a Russian patent for an invention or the seventeen-year validity period of a US patent. When determining the validity period of an agreement for the transfer of know-how, in international practice, a period of five years is considered accepted, and for individual agreements it varies from two to ten years.

The value of an enterprise's business reputation or goodwill is determined by the excess profitability method, which can be considered as a special case of the capitalization method. Goodwill assessment is performed as a component procedure for assessing the value of the enterprise as a whole. They proceed from the position that goodwill is those intangible assets due to which the return on equity capital of an enterprise exceeds the industry average profitability. Calculations are performed in the following sequence:

Analyze data on the performance of enterprises in the industry to which the enterprise belongs and calculate the average industry value of return on equity (the ratio of net profit to the enterprise's equity capital).

The net profit of the enterprise is determined at the industry average level of profitability, for which the industry average profitability indicator is multiplied by the enterprise’s own funds.

Determine excess profit; in this case, the net profit at the industry average profitability is subtracted from the actual net profit.

The capitalization method, that is, dividing excess profit by the capitalization ratio, determines the value of goodwill.

There are a number of intangible assets, the value of which can only be assessed on the basis of a cost approach. The method of calculating estimated costs determines and takes into account the cost of such intangible assets as target organizational expenses, the cost of R&D results, the cost of industrial designs, the cost of licenses for the right to engage in certain types of activities, etc. Cost is defined as the total of costs according to the expense scheme plus profit.

The assessment of intellectual property objects is carried out differently depending on the purpose of the purpose.

Firstly, the assessment of intellectual property objects is necessary when determining the amount of remuneration to the authors of the development and when determining the economic effect from the use of a certain object, on the basis of which payments are made to the authors.

Secondly, when an object of intellectual property is placed on the balance sheet of an enterprise, it is assessed for inclusion in intangible assets; objects of intellectual property can be included in the authorized capital of an enterprise.

thirdly, when concluding licensing agreements, it is necessary to determine the price of the license, for which an assessment is made.

fourthly, the assessment is made when carrying out collateral transactions, property insurance, division and merger of companies, and determining the value of a business.

fifthly, in case of violation of exclusive rights, it is also necessary to make an assessment to determine the damage from the violation.

There are three classical approaches to the valuation of intangible assets:

Expensive;

Comparative;

Yield-based valuation.

The cost approach is used when estimating the value of intangible assets if it is impossible to find analogues and the projected income is not stable. As a rule, intellectual property objects such as information databases, which fall under the definition of an intangible asset, are created over a fairly long period, and the costs of their formation are most often written off as expenses. Despite this, a collected scientific library, for example, can be of great value - in some places it can be the most expensive asset of an enterprise, especially in cases where the enterprise is a scientific institute or a higher education institution. Assets of this kind are valued, as a rule, using the cost of creation method, that is, from the point of view of the cost approach.

The comparative, or market, approach is used if there is a sufficiently developed market for the sale of intangible assets that are being valued. This approach is based on the principle that markets operate efficiently in which investors buy and sell assets of similar types while making independent individual decisions. At its core, it is precedent-setting, because the value of an intangible asset is determined through comparison with similar transactions that have already taken place on the market.

When evaluating patents and licenses, trademarks, trademarks, property rights, as a rule, the third method is used - the profitability method, which is based on the calculation of economic benefits associated with making a profit through the use of intangible assets. This method requires fairly accurate knowledge of the market prospects of the product in which the object being valued is used. Its value is calculated as the net present (discounted) value of the income that the intangible asset can generate in the future. For example, they study how much cash flow is generated from the use of patents and trademarks in the enterprise.

In addition to the listed methods, the method of determining the value of goodwill, based on the indirect assessment of intangible assets, is actively used.

Interbrand Group Ltd (headquartered in New York) is known as the world's leading evaluator of intellectual property, including trademarks. She announces the ranking of the 100 most expensive brands every year. The company has existed since 1974 and has offices in 21 countries. Evaluated about 2,500 brands. Interbrand is part of the international advertising network Omnicom Group (headquarters in London). Among the clients of Interbrand Group Ltd are BMW, British Airways, Bacardi-Martini and many other large international companies1.

The consulting company Interbrand and Busi Week magazine have published another ranking of the 100 most valuable brands in the world. 62 of them are American. There are no Ukrainian or Russian brands on the list yet (Table 6.2).

Table 6.2. V

The methodology for determining the rating includes various aspects of the activities of companies that have certain brands. The rating is based on a detailed analysis of what portion of product sales is generated by the brand alone. The strength of the brand is also taken into account, which is determined by the following factors: the leadership of this brand in the market; stability and the ability to cross geographical and cultural boundaries.

To be included in the rating, a brand must meet a number of formal criteria. Firstly, the value of the brand must exceed $1 billion. Secondly, it must be global, that is, at least a third of all products under this brand must be sold outside the country of its origin. Thirdly, the company must have open financial and marketing information about its own products. Thus, for not meeting this set of criteria, Visa, Air Force and Mars were not included in the rating.

Having assessed the value of an intangible asset based on the chosen approach, the accountant includes it in the assets of the enterprise, forming the initial cost.

The initial cost of an intangible asset acquired for money consists of the price (cost) of the acquisition, duty; indirect taxes that are not refundable; other expenses directly related to its acquisition and bringing it to a state suitable for its intended use.

Possible options for forming the initial value of intangible assets obtained as a result of other operations are presented in Fig. 6.1.

Over time, as a result of the use of an intangible asset by an enterprise, it can be valued at its residual value. Residual value is the value of an intangible asset, taking into account the degree of depreciation, defined as the difference between the full original cost and the depreciation accrued over the entire period of use of the intangible asset (the amount of depreciation charges).

In conditions of inflationary economic development or changes in the market situation, a revaluation of an intangible asset and determination of replacement cost is possible. Replacement (revalued) cost is the value of an intangible asset in modern conditions of reproduction, after revaluation.

Rice. 6.1. V Possible options for forming the initial cost of intangible assets

Revalued cost = Initial cost o K, where K is the revaluation coefficient.

Example 6.2.

The initial cost of the intangible asset - software "1C: Commerce", which is taken into account on the enterprise's balance sheet, is UAH 2,500, depreciation as of the date of revaluation is UAH 500, fair value as of the date of revaluation is UAH 3,000. Revaluate the intangible asset.

1) residual value before revaluation: 2500 - 500 = 2000 UAH;

2) residual value after revaluation = fair value at the date of revaluation = 3000 UAH;

4) revalued original (replacement original) cost 2500 x 1.5 = 3750 UAH.

According to accounting, an enterprise can revaluate intangible assets for which there is an active market.

An active market is a market that has the following characteristics:

1) the items that are sold on it are homogeneous;

2) interested sellers and buyers can be found at any time;

3) information on market prices is publicly available.

In the case of revaluation of one object of intangible sea anemones, all other assets of the group to which this object belongs should be revalued (except for those for which there is no active market). If an enterprise has revalued a group of intangible assets, then subsequently they must be revalued annually.

The amount of revaluation of the residual value of intangible assets is included in additional capital, and the amount of depreciation is included in current expenses.

In accordance with tax accounting, revaluation of the book value of groups of intangible assets can be carried out annually in accordance with the inflation rate, with a lag of 10%. The revaluation coefficient in this case is determined by the formula

where / is the inflation index of the year, based on the results of which the revaluation is carried out.

In relation to intangible assets, it is also possible to use such types of value as fair and liquidation.

Fair value is the amount at which an intangible asset could be exchanged in a transaction between willing parties.

Liquidation value is the amount of money that an enterprise expects to receive from the sale (liquidation) of an asset at the end of its useful life.

Intangible assets rarely have a salvage value because rights and privileges typically expire or are lost.

Intellectual property represents the exclusive rights of an individual or legal entity to the results of intellectual activity and equivalent means of individualization (trademarks, service marks, trade names, etc.). Achievements of science and technology, literary, artistic, musical works and other objects of creative activity are objects of intellectual property; they have an intangible nature, different content and form of presentation.

In Russian theory and practice, in the overwhelming majority of cases, the term “intellectual property” is used to reflect any intangible objects of a business process, and for the purposes of accounting and reporting at an enterprise, the concept “intangible assets” is used.

That is "Intellectual Property" = "Intangible Assets"

Intangible assets are defined as “investments in intangible objects that are used in business activities over a long period and generate income.” According to clause 55 of the Regulations on accounting and reporting in the Russian Federation, intangible assets used in economic activities for a period exceeding 12 months and generating income include rights arising:

from copyright and other contracts for works of science, literature, art, for computer programs, databases, etc.;
from patents for inventions, industrial designs, collectible achievements, from certificates for utility models, trademarks and service marks or licensing agreements for their use;
from rights to “know-how”, etc.

The valuation of rights to intangible assets has much in common with the valuation of tangible property. However, for intangible assets there is no universal exact method for determining value, since each of them is so individual that it is impossible to create a mathematical algorithm for reliable and accurate calculation of the value of an intangible asset.

In addition, the value of intangible assets is influenced by a wide variety of factors. However, practicing evaluators need to be aware of the theoretical developments in this area and, where possible, use the results of this research in their practice.

For practical assessment of the value of intangible assets, experts recommend cost, income and combined approaches, usually used in the assessment of other types of assets.

INCOME APPROACH to valuation of intangible assets

Basic methods of the income approach to assessing intangible assets:

method of discounting cash flow of intangible assets,
method of direct capitalization of intangible assets,
method of exemption from royalties of intangible assets,
method of excess profits of intangible assets,
method of splitting the profits of intangible assets

The use of the income approach when valuing intangible assets is subject to the possibility of generating income from the use of intellectual property.

Income from the use of intellectual property is the difference over a certain period of time between cash receipts and cash payments (hereinafter referred to as cash flow) received by the copyright holder for the granted right to use intellectual property.

The main forms of cash receipts are payments for the granted right to use intellectual property, for example, royalties, lump sum payments and others.

The amount of payments for the granted right to use intellectual property is calculated on the basis of the most likely value that could arise when the parties to the transaction act reasonably, have all the necessary information, and the amount of payments is not affected by any extraordinary circumstances.

The main forms of benefits from the use of intellectual property are:

cost savings on the production and sale of products (works, services) and/or on investments in fixed and working capital, including actual cost reduction, no costs for obtaining the right to use intellectual property (for example, no license fees, no need to separate from profits the most likely share of the licensor);
increase in unit price of manufactured products (works, services);
increase in the physical volume of sales of manufactured products (works, services);
reduction of taxes and (or) other obligatory payments;
reducing debt service payments;
reducing the risk of receiving cash flow from using the valuation object;
improvement of the time structure of cash flow from the use of the valuation object;
various combinations of these forms.

The benefits from the use of an intangible asset are determined on the basis of a direct comparison of the amount, risk and time of receipt of cash flow from the use of intellectual property with the amount, risk and time of receipt of cash flow that the copyright holder would receive if the intellectual property was not used.

Determining the market value of intellectual property using the income approach is carried out by discounting or capitalizing cash flows from the use of intellectual property.

Discounted Cash Flow Method

For valuation objects that, over equal periods of time, generate cash flows from the use of intellectual property that are not equal in value, the value is determined by discounting future cash flows from the use of intellectual property.

Determining the market value of intellectual property based on discounting includes the following basic procedures:

determination of the magnitude and time structure of cash flows created by the use of intellectual property;
determining the value of the appropriate discount rate;
calculating the market value of intellectual property by discounting all cash flows associated with the use of intellectual property.

In this case, discounting is understood as the process of bringing all future cash flows from the use of intellectual property to the date of assessment at a discount rate determined by the appraiser.

When calculating the discount rate for cash flows generated by the intellectual property being valued, one should take into account: the risk-free rate of return on capital; the amount of the risk premium associated with investing capital in the acquisition of the assessed intellectual property; rates of return on capital of investments similar in risk level.

In this case, the risk-free rate of return on capital is defined as the rate of return for the least risky investment of capital (for example, the rate of return on deposits of banks of the highest category of reliability or the rate of return to maturity on government securities).

Direct income capitalization method

For valuation objects that generate cash flows from the use of intellectual property over equal periods of time, equal in value or changing at the same rate, the value is determined by capitalizing future cash flows from the use of intellectual property.

Determining the market value of intellectual property based on capitalization includes the following basic procedures:

determination of cash flows generated by the use of intellectual property;
determining the appropriate capitalization rate for cash flows from the use of intellectual property;
calculation of the market value of intellectual property by capitalizing cash flows from the use of intellectual property.

Capitalization means the determination, as of the date of valuation, of all future values of cash flows that are equal to each other or changing at the same rate from the use of intellectual property for equal periods of time. The calculation is made by dividing the cash flow from the use of intellectual property for the first period after the date of assessment by the appropriate capitalization rate determined by the appraiser.

When calculating the capitalization rate for cash flows generated by the assessed intellectual property, one should take into account: the value of the discount rate (return on capital); the most likely rate of change in cash flows from the use of intellectual property and the most likely change in its value (for example, if the value of intellectual property decreases due to a reduction in its remaining useful life, take into account the return of capital invested in the acquisition of intellectual property).

The capitalization rate for cash flows generated by intellectual property can be determined by dividing the amount of cash flow generated by similar intellectual property by its price.

Royalty waiver method

The royalty waiver method is used to estimate the value of patents and licenses.

The owner of a patent grants another person the right to use the intellectual property for a certain fee (royalty). Royalty is expressed as a percentage of the total revenue received from the sale of goods produced using the patented product. Under this method, the value of intellectual property is the present value of a stream of future royalty payments over the economic life of the patent or license. The royalty amount is determined based on market analysis.

The royalty exemption method exists in three modifications, differing in the calculation base (gross revenue, additional profit, gross profit). Calculation of the cost of intellectual property using the royalty exemption method is carried out in several stages.

At the first stage, a forecast of sales volumes is compiled for which royalty payments are expected (taking into account the product life cycle).
The second step is to determine the royalty rate. The data is taken from tables of standard royalty amounts printed in specialized literature.
The third step is to determine the economic life of the patent or license. The legal and economic service life may not coincide, so a realistic forecast regarding the duration of payment must be made.
The next step is to calculate expected royalty payments by calculating a percentage of projected sales.
Fifth, all costs associated with securing a patent or license are deducted from the expected royalty payments.
At the sixth stage, discounted profit flows from royalty payments are calculated.
On the seventh step, the sum of the current values of the profit streams from royalty payments is determined.

The formula for calculating an intellectual property item using the royalty exemption method is:

Вt - revenue in the t-th year;

R - royalty rate for the industry;

Zt - costs associated with maintaining the intangible asset in force in the t-th year;

T - patent validity period, years.

The cost of a license using the royalty method is calculated as:

Вt - revenue from sales of products under license in the t-th year;

Ri - royalty amount in i-year, %;

T - validity period of the license agreement, years.

The royalty amount depends on the following factors:

scope of legal protection (sale of an unpatented development reduces the license price to 30%);
the volume of transferred rights of use (the most expensive is a full license, the cheapest is a simple license);
volume of production and the ability to control the release of products under a license (if control is difficult, the price of the license increases);
term (the longer the term, the lower the royalty rate);
scientific and technical significance and commercial opportunities for using the innovation (advanced development costs more);
the amount of capital investment required to organize production of products under license;
volume of transferred technical documentation: whether it is transferred in full (design, technological, operational) or partially (design only);
the licensee’s dependence on the supply of materials, tools, components for organizing the production of products under the license, as well as on the amount of technical assistance from the licensor in the development of the facility;
market situation: availability of competitive offers for the purchase of technologies that are similar in economic efficiency;
The royalty amount can be determined empirically (based on standard average values) or by calculation.

For example, royalty rates are 20-25% of the licensor's additional profit or 0.5-14% of sales volume, cost or product price.

In the absence of data on a specific industry or subject of a license, the calculation of royalty rates is carried out taking into account the level of profitability of production and the licensor’s share in the profits of licensees:

P - profitability of production and sales of products under license;

d - the share of the licensor’s profit in the licensee’s total profit from the production and sale of products under the license (from 10 to 50%).

Excess Profit Method

The essence of the method is to calculate the industry average profit on assets and then compare it with a similar indicator for the enterprise under study. It is assumed that an enterprise, having intangible assets not reflected on the balance sheet (or reflected at an undervalued value), receives additional profit from its use. This profit, by multiplying it by the capitalization ratio, directly reveals the cost of intangible assets.

Stages of estimating the value of intangible assets using the excess profit method:

1. determination of the market value of all assets;

2. normalization of the profit of the assessed enterprise;

3. determination of the industry average return on assets;

4. calculation of expected profit based on multiplying the industry average income by the amount of assets (or equity capital);

5. determination of excess profit (expected profit is subtracted from normalized profit);

6. calculating the value of the investment property by dividing the excess profit by the capitalization ratio.

Profit Advantage Method

Profit advantage refers to the additional profit generated by the assessed intangible asset. The advantage in profit is formed either in comparison with enterprises that produce similar products, but without using the evaluated IP, or in comparison with the production of products by the same enterprise, but before using the evaluated IP.

The essence of this method is to predict and evaluate in monetary form the profit advantage that arises throughout the entire period of use of the intangible asset, bring it to its current value and sum it up - this will be the value of the valued intellectual property item.

The general formula for assessing intangible assets using the profit advantage method:

∆P - profit advantage

r - discount rate;

T is the expected period of obtaining an advantage in profit.

Profit splitting method

By this method, the cost of a license is determined as the licensor’s share of the additional profit received as a result of the use of the IP, the right to use, which is transferred upon concluding a license agreement.

Licenses = Dl-ra*∑Vt * (Tsed - Sed) * Kdisk, where:

Dl-ra – licensor’s share;

Vt – production volume for 1 year;

T – number of periods;

Цt – unit price;

Ct – unit cost of production;

Kdisk – discount factor.

In world practice, when concluding licensing agreements, the licensor’s share is set in the range from 10 to 30%.

To determine the licensor's share, 5 factors are taken into account:

1. Territory under the license, that is, a list of countries in which the licensee is granted rights in accordance with the terms of the license agreement to use industrial property to organize the production and sale of products under the license. It is calculated using the indicator of the territory specified in the agreement: Pt = Nt/Nв, where:

Nt – number of countries, territories specified by the agreement;

Nв – the number of countries occupying a leading position in the production of products of this type (determined on the basis of patent research).

2. The scope of rights under the license, that is, what rights the licensee received under the terms of the license agreement. Po = 1 – exclusive license; Po = 0.5 – non-exclusive license.

3. The degree of legal protection of an industrial property object within the specified territory: Ppo = Npo/Nt, where:

Npo – the number of countries within the specified territory Nt in which legal protection of intellectual property is provided for the subject of the license.

4. Possibility of unhindered sales of products under a license without violating the rights of 3 parties within the agreed territory (patent purity of products under a license): Рпч = Nпч / Nt, where:

Npch – the number of countries within the specified territory Nt in which an examination for patent purity was carried out.

5. Volume of transferred documentation (design – 30%); Op – a complete package of documentation.

All these 5 factors are combined into a single formula:

Licensor's share = 0.3*(Pt+Po+Ppo+Ppch+Pod)/5

Thus, we have examined the main methods for assessing intangible assets of the income approach.

COST APPROACH to assessing intangible assets

The cost approach is used for inventory purposes, balance sheet accounting, and determining the minimum price of intellectual property, below which a transaction becomes unprofitable for the owner of an intangible asset.

As part of the cost approach, the following methods are used when estimating the value of intangible assets and intellectual property:

method of summing up actual costs;
replacement cost method;
replacement cost method;
reduced cost method.

Method for summing the actual costs of assessing intangible assets

The method of summing up actual costs is applicable to those intellectual property objects that are created by the copyright holders themselves. The cost of an intellectual property item within the framework of this method is determined by the formula:

SZ(actual) = C1 + C2+ C3+ C4, where:

SZ (actual) - the estimated value of the value of the assessed intangible asset;

C1 - the costs of creating an intangible asset are the sum of the actual costs incurred to carry out research in full and develop all stages of technical documentation, calculated taking into account profitability.

C2 - costs of legal protection of an intangible asset;

C3 - costs of marketing research;

C4 - costs of bringing an intangible asset to readiness for industrial use and commercial sale.

Replacement cost method for assessing intangible assets

This method is based on identifying the value of rights to intangible assets with the costs of its reconstruction, taking into account a reasonable amount of profit. Such reconstruction involves a complete copying of the calculation of the valued intellectual property object and taking into account the costs of its legal protection. Calculation formula:

Сз = Кс S∑Зi x Ki x Kii,

Сз - cost of restoration of the IP;

Kc is the coefficient of obsolescence (depreciation) of intangible assets by the final year of the billing period;

Зi - costs of creating intangible assets incurred in the i-th year;

Ki is the numerical value of the coefficient for bringing different-time value estimates to the accounting year (the coefficient for increasing bank interest rates) for the i-th accounting year;

Kii is an indexation coefficient that takes into account changes in price indices for the i-th accounting year.

Ks - is determined by the formula: Ks = 1 – Tf/Tn, where:

Tn - nominal validity period of the security document, license;
Tf - the actual validity period of the security document, license and the final year of the billing period;
t is the initial year of the billing period;
T is the final year of the billing period.

Determining the market value of intangible assets using the replacement cost method includes the following main steps:

determining the amount of costs for creating a new object similar to the object being assessed;
determining the amount of depreciation of the valuation object in relation to a new similar valuation object;
calculation of the market value of the appraised object by subtracting the amount of depreciation of the appraised object from the amount of costs for creating a new object similar to the appraised object.

Replacement cost method for valuing intangible assets

The replacement cost method assumes that an analogue of the valued intellectual property object with similar consumer properties is used for valuation.

The calculated cost takes into account the costs of bringing an intellectual property object - an analogue that replaces the assessed intellectual property object - into a state ready for further use for the planned purposes.

Such costs may be the costs listed in the cost of creation method, which take into account the amount of remuneration only to persons who contributed to the acquisition of a replacement intellectual property item and brought it into a state suitable for further use for the planned purposes.

The present cost method when calculating the current market value of an appraised object involves recalculating actual past costs for the creation and preparation for use of an appraised object into the current value, taking into account changes in money over time. Formula:

Сз(pr.) = Сз(actual) S∑Ki Di /100,

Sz(pr.) - reduced costs;

Сз(actual) - actual costs;

Di is the share of actual costs in the i-th year, %;

Ki - the numerical value of the coefficient for bringing value estimates at different times to the accounting year (the coefficient for increasing bank interest rates) is determined by the formula:

1) for the period of time preceding the accounting year: Ki = (1 + E)T-tp

2) for the period following the billing year: Ki = 1/(1 + E)T-tp, where:

E - standard for bringing value estimates at different times, calculated using the formula:
E = a/100, where:
a- bank interest (refinancing rate);
tp - the year in which the valuation is reduced to the accounting year (the initial year of development of the object of legal protection, the initial year of validity of the exclusive rights to the object, the year of validity of the license agreement, etc.).

Thus, we have reviewed the main approaches and methods for assessing intellectual property and intangible assets.