There are a number of different brand valuation methods. There are pros and cons of all these methods of valuing brands. A brand valuation method that is appropriate for one brand may not be the best valuation method for another. Judgement should be exercised to ensure the most appropriate of brand valuation methods is used.
The main brand valuation methodologies are:
1. Income based brand valuation methods
- Relief from royalty method: this valuation method is based on how much the brand owner would have to pay to use its brand if it licensed the brand from a third party. It uses discounted cash flow analysis (DCF) to capitalise future branded cash flows
- Excess-earnings method: this valuation methodology calculates the earnings above the profits required to attract an investor – which uses the estimated rate of return based on the current value of the assets employed. These excess earnings are assumed to be attributable to the intellectual property, or brand.
- Price premium method: this valuation method is based on a capitalisation of future profit stream premiums attributable to a business’ brand above the revenues of a generic business, without a brand.
- Capitalisation of historic profits method: the valuation method is based on the capitalisation of profits earned by the brand.
2. Market based brand valuation methods
- P/E ratios method: the P/E (price to earnings) valuation method multiples the brand’s profits by a multiple derived from similar transactions of profits to price paid based on the value of reported brand values.
- Turnover multiples method: this brand valuation method multiplies the brand’s turnover by a multiple derived from similar transactions.
3. Cost based brand valuation methods
- Creation costs method: this valuation methodology estimates the amount that has been invested in creating the brand.
- Replacement value method: this valuation method estimates the investment required to build a brand with a similar market position and share.
Which brand valuation method to use?
It is generally best to value brands using all appropriate brand valuation methods and synthesise the results to arrive at a conclusion.
Article sourced from – Brand Valuations UK
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