Brand valuation is an exercise to estimate the value of a brand. Now the question arises what is brand and motive of this article is to provide a glimpse of Brand Valuation. Brand is an intangible asset of the company which includes things like trademarks, logo, colors used, the way of packaging of goods etc. or in simple terms we can say it is face of the business. It provides a competitive advantage to the company against its competitors in the industry. Generally most of the entrepreneurs are of the view that it is only tangible asset like plant and machinery, land, building etc. which contribute to the growth of a company. But on a reality check, brands also have a heavy hand in this regards. Valuation of brands for a company comes in use by various stakeholders like corporates, government for taxation purpose or dispute resolution or licensing, by purchaser in case of slump sale, by bank or financial institution in case of providing loan, also by the management to develop business strategy accordingly. Brand valuation has to be based on principals like transparency, validity, reliability, sufficiency etc.
Specialists in the valuation industry use three approaches for Brand Valuation. These are elaborated as follows:
1. COST APPROACH METHOD
In this approach, the brand is valued in accordance with the cost incurred to develop a brand. It includes the present cost as well as the historical costs incurred from the point of generation of brand itself. It should be kept in mind that the historical cost should be taken as per their present values.
2. MARKET APPROACH METHOD
As the name suggests, this method value the brand in accordance with the value of similar brands present in the market. It implies the price at which the brand could be sold out in the market in the present date. This method is based on the principle that similar type of brands has comparable market value in the industry. Market approach method is easy to be employed but sometimes it is quite difficult to find out the brand of same nature.
3. INCOME APPROACH METHOD
It is a type of futuristic approach. It takes into account the present value of the cash inflow to be generated in future date just because of goodwill of brand. Higher the value generated because of brand, higher will be this value.
To conclude this article……
Generally it becomes difficult to decide which of the above method is to be employed while valuating the brand, however the best way to value the brand is to employ all the above given method and to conclude it in accordance to the weights provided to each method.
Also along with the methods employed, the knowledge, experience of the valuer also plays a crucial role in brand valuation.
Thanks & Regards-
PureValue Research Team