Valuation of intangible assets

An intangible asset is an identifiable asset, non-monetary and non-physical in nature, that grants economic rights and benefits to its owner.

Future economic benefits from an intangible asset may include ordinary income from the sale of products or services, cost savings and other different returns that arise from the use of the asset by the entity, such as the reduction of production costs.

International Accounting Standard No. 38 determines that an intangible asset is identifiable if: it can be separated from the entity and sold, or it results from contractual rights or other legal rights.

Intangible assets can be of different scopes:

• Marketing-related (trademarks, trade names, branding, internet domain names, newspaper mastheads, non-compete agreements, data).
• Assets related to customers or suppliers (customer portfolio, order relationships, customer contracts and related relationships, non-contractual relationships with customers).
• Technological (proprietary technology, computer software programs, non-proprietary technology, databases, trade secrets, ongoing research and development, manufacturing processes, technical knowledge or know-how).
• Artistic (copyright and design rights).
• Contractual (licenses, concessions, franchise agreements).
• Goodwill.

In the valuation of intangible assets, three valuation methods are used: the comparative market method, the cost method and, mainly, the income method.

When applying the income method, different techniques are used, such as:

• Discounted cash flow.
• Royalty savings.
• Extraordinary profits or profit differential.
• Real options.