Valuation of intangibles

Transcription

1 Valuation of intangibles Andrea Saravalle PhD Student Faculty of Economics University of Urbino Carlo Bo - Italy Mobile Phone: Mail: andreasaravalle@yahoo.it Abstract This paper outlines a detailed evaluation of intangible assets within the company, now more and more important and fundamental. It focuses on these resources through the use of direct valuation methods (scored card, Tobin's Q ratio, VAIC, interbrand, technology brokers), historical cost, customer relations, replacement cost, market and expected benefits. Jel Classification: M3 Electronic copy available at:

2 In recent years several studies, both empirical and analytical in character, have tried to highlight a different classification of intangible resources. In a classification in the OCSE intangible assets have been divided into categories of primary and secondary or additional investment. In the category of intangible resources to meet primary investment research and development, education and training, software, marketing, licensing, trademarks, copyrights and patents. Among the secondary investment within organizational development, industrial design, design, planning and implementation of databases, funding of innovative ideas and other investments in human resource development (excluding education and training). With reference to the complex of recent studies we can remember that the phenomenon of immateriality is revealed conceptually at two levels, namely in the intangible elements present in the production and in the intangible elements inscribed in the production processes (in other words in the factors of production). Lately, the notion of intangible resource has prevailed over the more traditional intangible factor of production. It is believed that the inputs are not available within the company and should therefore be acquired by investment transactions. The input type of intangible resources are but a specific role and determined with respect to the production process, while the role of material resources would be more general or organic. In a study published in the journal of Harvard University says "the concept of inputs is useful to identify those goods and services necessary for the performance of the productive combination, not available within the enterprise system. Their acquisition is relevant for determining whether investments of monetary wealth available. The broader concept of corporate resources, however, is certainly more appropriate to express a combination of all the elements that come in virtually any combination of production and contribute substantially to determining the success or failure of the company. " And 'possible, however, right now highlight a first distinction between intangible assets and intangibles. The separation of the two concepts is related to the fact that the former are individually identifiable and measurable in a simple manner and intangibles, even if they produce benefits (in the absence can not be assessed and would not be considered economic resources) see their identity in the complex scattering of the economy. The resources of the type of non- cash may therefore be divided into specific inputs such intangible, intangible assets and intangibles. Intangible assets are a key point, for different aspects of business life. They develop ideas concerning economic development and innovation. In the mid- '80s, the theory of economic growth shifts significantly toward the logic of endogenous growth. In them it is important to highlight the increasingly high importance attached to knowledge and the role attributed to the business of his generation, Electronic copy available at:

3 through the process of capital accumulation. At a time when growth is attributed to knowledge emerge, so clear, the role and economic importance of intangible resources as the main engine of economic development. As for the intangible assets and the connection with the theory of innovation, in 2002 ilsistema Baumol argued that capitalism, which characterizes the free market, it was very distinct from any other economic system to realize high rates of growth driven by 'innovation. The interpretation of this phenomenon is provided in a purely microeconomic key: market competition forces companies in an ongoing effort innovator that gives the whole, the entire system, a strong impetus to the development. It will create a level of development below which, the active firms will tend to gradually lose market share. Given the existence of oligopolies in different realities of the real economy, we must remember that the actions of the players are visible and the risks associated with these actions are in the same way. In this way, companies will seek, each with its own time frame best suited to adapt to the new level of innovation costs. The development and innovation are two complementary interpretations that allow us to understand how important the intangible resources in what is commonly called Progress. The generative process that characterizes the production company already indicates what are the conditions for the enterprise system is at equilibrium and thus the lasting survival in the market. The economic viability of the company within the market is tied to its ability to achieve an economic profit, which requires, in the long run, possession of a few advantages of competition. The differential competitive company in question in relation to its competitors may result either from conditions that can also be defined by the structural conditions within the firm that those intangible assets that, as written, are the basis of innovative processes. In other words, the value of intangible assets is a function of economic profit perspective. The line of research based resourced establishes a link between the competitive differentials rather explicit and intangible resources. It 'obvious that establishing a relationship between the direct and exclusive benefit and intangible resources alone is a force to the complex model that characterizes the company. Material possessions, on the other hand, suffer from a high degree of standardization, and for this reason, they are easily accessible. So if the competitive advantage derived from the mere possession of them, it would be easy for any competitor to imitate this advantage and therefore would not be defensible from the original company. Intangible assets, therefore, are not the only resources that produce a competitive advantage, as they are not the only material resources, but it is the interaction of these two types to allow a company to be called a market leader. Intangible assets show, however, two particular types of bonds with competitive differentials, through the means of

4 their use and effects network. The material resources are, in fact, used in a non- exclusive, inasmuch as they (thanks to the characteristic of immateriality) do not undergo the physical limits of material resources, which must be used in a specific and predetermined production process and not in two or more processes production at the same time. It then removes, to some extent, the problem of doubling the resources within the enterprise. As regards the network effect we can say that, for the same as any other consideration, the benefits obtainable by network effects are larger the higher the number of customers persons or organizations connected to the network.

5 Valuation models of intangible resources. A problem of great interest in corporate finance is the evaluation of the various intangible resources that can be identified within a company. From the point of view, we can have three possible solutions to methodological: the way accounting (which requires the inclusion of all intangible values in the chart of accounts), the opposite path that the type- balance sheet (with the aim of creating a ' summary notice of quantitative and qualitative stranger, however, the language of the accounts), the way of additional records than the general traditional, designed so as to represent the dynamic background of the greatness and grandeur flow of intangible assets. There are also more and more solutions that can be defined as a mixture in which all available information is used. Among the most effective criteria, there is one that highlights four measurement techniques: market capitalization (in which intangible assets are estimated as the difference between market value and the value of equity), return on assets, a method of calculating the profitability starting from the average income before taxes divided by the average value of intangible assets. This value (ROA) is compared with the similar average value of the sector. The difference is that evidence is multiplied by the average value of intangible assets and identifies the annual income attributable to intangible property which, capitalized, gets the value of intangible capital.

6 Direct estimates of the value of individual intangible assets. Methods based on scored card. These various valuation techniques are used within the broader valuation models. The direct models can also be grouped according to the fact that the intangible capital is assessed using a representation monetary or non monetary assets and a synthetic or an analytical representation of the assets. Let's see now, a brief description, some measurement models. Tobin's Q. The quotient This quotient is the result of the relationship between market value and replacement cost of all items included in the capital. The main difference that develops between the quotient Tobin's Q. and the best- known index of "market to book ratio" is in the neutralization of the political differences of depreciation of values. In cases where the ratio was alll'unità is evident that the expected return by the firm is equal to the cost of capital. In the case in which, instead, the ratio is less than unity, suggesting an evaluation by the market, of the share at a lower level of its replacement cost. Finally, if the ratio is greater than unity, the complex of assets worth more than the cost necessary to replace him or the company is worth more than the sum of its intangible assets (expressed in value risostituzione). The value added intellectual coefficient (VAIC) The determination of VAIC is divided into five steps and is based on some assumptions: intangibles are distinct in human capital and organizational capital, human capital is measured by the cost of labor and that it establishes an inverse relationship between the value of the value of human capital and organizational capital. The first step of the method of detection of the VAIC consists in determining the value created by the add- in period. The second step is inherent in the evaluation of the relationship between value added and capital invested, as the sum of tangible and financial assets expressed their values. In the next step, it develops the relationship between value added and cost incurred in the accounting period for the work, while in the fourth step we report the identification of the relationship between organizational capital and value added. These three reports of profitability identified in the fifth and last step are summed to obtain the synthetic

7 indicator called precisely VAIC. The Interbrand model. The inter- brand model is perhaps the most popular method of direct assessment of a specific type of intangible property. It is based on a first phase, a market analysis to determine the seven factors that are supposed to measure the strength of a given brand (leadership, stability, market, internationality, the development trend of long- period, support, legal protection). These seven factors, weighted with a weight between 0 and 25, allow an assessment expressed in hundredths to which will be associated with a multiple, generally the P / E, which allows the conversion of the score value. The multiple must now be applied to a consistent outcome measure that is identified in Profit net difference, or operating income, net of tax type differentiation (in fact obtained from the difference between operating income and income of the branded operating a product unbranded). The method of technology brokers The method uses the traditional approaches of analytical evaluation of intangibles, such as the cost method in the market and that of future benefits expected. The method of technology brokers is divided into several phases: first, the intangible resources are divided into four categories (market intangible assets, human capital, intangible property legally protected intangibles infrastructure), at which point they develop two different types of questionnaires for which the first addressed to the understanding of the degree of relevance of each single component and the second with the aim of controlling the corporate policies that are believed to have greater influence on material resources. The combination of these two questionnaires used to define, in a rather analytical, the information framework used for the evaluation of intangible assets identified by the methods belonging to three families evaluation.

8 The method of the value of customer relationships. The value of customer relationships can be traced to the simple evaluation, through the acquisition of new customers. In order to develop self- evaluation of intangible assets, we must, first of all, identify the criteria for definition. The requirements, suggested by Brugger in an article in 1989, are commonly used are: the well should be a measurable and significant flow of investment, the well should be a source of economic benefits differentials, the well should be transferable salable, transferable to third economies. Is defined as "transferable" in cases where it can be extracted by the company, along with other goods sold to third parties by the presence of a market. The characteristic of transferability allows for good to be defined independently, at least from the ideal point of view, and also its extrapolation from the value indistinct starter. Some researchers have economic, however, raised the need to oppose to the concept of transferability to identifiability. Limiting the process of defining the identification of good and not extending that of its portability, the intention of the scholars is inherent in overcoming the problem of the existence of a relevant market in which the material factor can be effectively evaluated and exchanged. Some intangibles are also the subject of accounting. The recent transformation of the international accounting principles (both European and American) concerned, under a particular entity, even accounting for intangibles. In the logic followed by the accounting standards, an intangible asset can be derived from three different business transactions or the purchase of a business combination under the purchase in a specific economic transaction as an asset independently or can be generated internally. The different origin affects both how the asset is operational on the determination of its value. However, the European accounting standard IAS 38 is independent of the source of the good and uses two basic principles related to the fact that the intangible asset is an identifiable non- monetary and non- financial and, at the same time, is recognizable. To define an asset identifiable, separate, in a first instance, the concept of assets from that of identifiable. The assets sees its definition "a business asset from which we expect future benefits, which can be controlled to obtain the benefits and failing to develop an exclusion of others." To be the resource must be identified in line with one of the following principles: good must be separated from the corporate, not for sale individually or together with other goods, the good result of the exercise of a statutory right to appointed regardless of whether those rights are transferable. To be recognized, however, resources

9 are subject to the conditions that economic benefits are enjoyed by the fact that the cost of goods and materials is actually measured reliably. The methods based on historical cost or historical cost residual current. With the cost method, the intangible asset is valued on the basis of costs incurred, or that you would incur to obtain the relevant good, a good equivalent in terms of future benefits expected to achieve. The value you obtain from this analysis should be compared by way of income through the implicit comparison between the profitability and viability of the intangible asset of comparable property in terms of types of risk. At this point you open several roads evaluation: the first is the so- called historical cost methodology to date, ie the expression values and net of current slump well, the past cost to dispose of the property; A second method is the expression of the identified costs to current values. In other words, it updates the historical cost using a coefficient for adjusting to the particular type of intangible asset and, after the adjustment, you must proceed to the definition of the asset's economic life considering the problem of depreciation. Quantifying the value of depreciation is a very complex matter that depends on the manner in which the asset was used and consumed in the production process is the amount of revenue involved. Unlike tangible goods, intangible property is not necessarily lose value with their use: the international accounting standards have in fact identified two broad areas of intellectual property: those with a finite life and those with indefinite lives (ie not definable) with two different methodologies of analysis.

10 Methods based on replacement cost and reproduction. The first approach sees the value of the assets identified by the identification of costs that would occur on the date of analysis, in order to have an intangible asset similar to that which we intend to evaluate. With the similar term economic doctrine reminds us of the degree of usefulness that it can lead to the economic process of the company. If, however, the method of reproduction cost, the value of the asset is estimated based on the costs required to produce a similar asset is not equivalent to being analyzed. The two methods may lead to distinct values as the new value, obtained with the cost of replacement, may be less than the new value, obtained with the method of reproduction, because of the good obsolescence. The two methods are, however, implementation and unit in the same proceeding. In the analytical methodology are specified and evaluated all the necessary parameters, while in the synthetic process develops a configuration of normal annual average cost necessary readying the well immaterial and it is projected for a certain period of time. The parameters, which is necessary to define the analytical methodology, are the types, volumes, prices of inputs necessary to the reproduction of the intangible asset, the time required for implementation and the discount rate to be applied to future investment flows. The value of the intangible asset is thus produced by the multiplication coefficient between the technician and the average cost normal, in cases in which develops a synthetic approach. Alternatively, should be identified in a timely manner the period of time necessary to the achievement of good immaterial and proceed to the actualization of the average cost, by means of a rate of expression of the return considered reasonable for investments of equal risk.

11 Methods based on the observation of the market or comparative. We can include as part of the so- called indirect type of valuation methods, including methods based on market observations as these estimates are based on future benefits that may be attributable to the intangible asset with an instrument that, in this case, is represented by transactions market already came or that can be compared to the object of evaluation. The simplest method among those related to the observation of the market is that of comparable transactions. It is necessary that goods are in fact comparable and that the markets in which transactions take place, whether active or give rise to a reasonable number of transactions while minimizing the extraordinary prices. From a practical standpoint, the evaluation process based on the observation of the market is developed in four steps: defining the intangible asset subject to estimate and analyze comparable transactions that can be defined, define the important measurements to calculate the value of the property, define the parameter that will link the value of the intangible asset with significant size chosen, the calculation of the value of the property. From an operational standpoint the most famous is probably the one based on annual royalties applicable to sale of use of the trademark or patent. The proceeds are to be obtained normally discounted over a period of "n" years over the period of use of such assets. An approach based on the observation of the market is the method of multiples. This method is based on the identification of a quotient that sees the economic value of the numerator and the denominator of the capital structure of a measure (turnover). The multiplier will then correct the numerator with the elimination of the value of economic capital, the book value of all assets not being valued.

12 The evaluation method based on expected benefits. Abandoning the policy of indirect spend a method based directly on the result of active flows attributable to the intangible asset. The assessment is due to the conceptual formula where F * is the value of the intangible asset, the expected cash flows F in the period, the discount rate. Again we can go make out an analytical approach and a synthetic approach. The analytical approach requires that the expected results are systematically estimated for each year, while the synthetic approach involves estimating limited to a normal average configuration. From the synthetic point of view the evaluation of material goods is achieved through standardization of corporate economic performance and the identification and isolation of the components of actual income and expense attributable to the intangible asset. To determine the value in use, the international accounting standard IAS 36 identifies certain methods of calculating flows. The cash flow in the evaluation is obtained from the difference between the cash flow associated with the use in continuing the good and the cash out flow necessary to support such use. The cash flow should be determined before financial items and before tax, projected into the future with reference to current conditions of the asset. The flows are derived from budget plans approved by management and shall extend for a period not exceeding five years. In addition to the period of analytical treatment, the flows must be determined using constant rates of growth or falling and, however, that do not exceed the rate of growth for the identified country.

13 Bibliographic resources Brondoni E.M. (2004), "Patrimonio di marca e risorse immateriali d'impresa",giappichelli Brugger G. (1989), "La valutazione dei beni immateriali legati al marketing e alla tecnologia", in Finanza, Marketing e Produzione n Campedelli B. (1998), "Analisi aziendale", Giappichelli Damodaran A. (2002), "Valutazione delle aziende", Apogeo Grando A., Guazzoni L. (1997), "Valutazione dei beni intangibili legati alla tecnoogia", in La valutazione delle Aziende n Guatri L. (1997), "Valore e intangibles nella misura della performance aziendale", Egea Massari M., Zanetti L. (2005), "Valutazione finanziaria", McGraw Hill Renoldi A. (1992), "La valutazione dei beni immateriali", Egea Rullani E. (1992), "Economia delle risorse immateriali: una introduzione", in Sinergie n. 29