Here is a summary of an article from Price Waterhouse Coopers on the Valuation of Intangibles (follow the link for the full presentation)

Knowledge, learning and innovation are sources of competitive advantage

Knowledge-based economies refers to the use of knowledge to produce economic benefits

Every good has knowledge content. Physical inputs are being replace by knowledge based inputs.

The emphasis on intellectual property as the source of value has increased considerably
in recent years

Intangibles / knowledge assets particularly significant in the pharmaceutical, software, aviation industries as well as financial institutions

Physical property because of it’s material existence are “exculdable” and “rivalrou”; can be consumed by one person at a given point in time

Intellectual Property Rights / Intangible assets are non-rivalrous and may be consumed / used by many person at the same time at very little cost / low cost

Value of the “good” to an individual is greater when a large number of people use the good

Intangible assests are prone to infringements through counterfeiting, duplication, fakes copying etc

Value is linked to exploitation of IPR and is dependant on the associated legal rights

Unlike physical assets, intangible assets are not subject to wear and tear

Some types of Intangibles
Trademarks, customer lists, music works, motion pictures, patents, trade secrets, lease agreements, franchise agreements

Valuing a Franchise

Three approaches to valuing intangible assets – Article sourced at CGMA

Intangible assets (intangibles) are long lived assets used in the production of goods and services. They lack physical properties and represent legal rights or competitive advantages (a bundle of rights) developed or acquired by an owner. In order to have value, intangible assets should generate some measurable amount of economic benefit to the owner, such as incremental revenues or earnings (pricing, volume, and better delivery, among others), cost savings (process economies and marketing cost savings), and increased market share or visibility. Owners exploit intangibles either in their own business (direct use) or through a license fee or royalty (indirect use). The International Glossary of Business Valuation Terms (IGBVT) is a glossary of business valuation terms that defines intangible assets as “non- physical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities and contracts (as distinguished from physical assets) that grant rights and privileges, and have value for the owner.”

Valuation assignments must estimate the value of intangibles, recognising the volatility, ongoing creation, and problems with protection and enforcement. Business valuation analysts have been independently valuing intangible assets for many years, usually in the context of an exchange between owners (transaction), for estate and gift tax purposes, or as part of a litigation assignment. Knowledge underlies the creation of value. Some of the questions that need to be answered include the following:

What would a willing buyer pay to employ the intangible asset?
What is the useful life of this asset?
What portion of the operating income does this asset generate?
Three methods used to value intangible assets include the market, income and cost approaches. This tool provides CGMA designation holders with an overview of the three approaches.

The information in this CGMA tool was adapted from Understanding Business Valuation, Third Edition, Copyright © 2011 by American Institute of Certified Public Accountants, Inc.