Valuation is a vitally important aspect of finance and business. A valuation involves a qualified individual assessing the assets and liabilities of a company. Being able to place a value on a company overall is essential for taxation, mergers and acquisitions, economic damages, litigation and much more.
Intellectual property valuation is an integral part of a business valuation.
What is a Business Valuation? (Link to support page).
A business valuation establishes a set figure for the value of a particular business. This allows businesses to comply with the requirements of tax authorities. It is also important when companies are bought and sold as a whole or when intellectual property is sold or licensed out.
The overall value of a business is assets minus liabilities. Examples of assets include stocks, property, patents, trademarks or business enterprises. Liabilities include bonds issued by the company, debt, payroll, taxes, and leases. Ultimately the value of a company is the difference between these two figures.
Liabilities are usually relatively straightforward to establish. Some assets such as equipment or cash are also relatively straightforward. However, in today’s landscape, the majority of value for most companies is contained within their intellectual property. Establishing a value on the intellectual property is often the most important aspect of a valuation.
Valuing Intellectual Property.
A company’s intellectual property is more difficult to place a value on even though it is vital that this occurs. Increasingly it is becoming common for a company’s value to be derived mainly from intellectual property. Microsoft is a famous example of a company whose intellectual property, or intangible assets, is much more valuable than their tangible assets such as cash, property, and equipment.
The value of intellectual property will be decided based upon a range of internal and external factors and should be undertaken by an accredited professional analyst or company with a high level of understanding about the relevant areas of business and industry.
For example, if a company is to be sold, a price must be arrived at. The intellectual property of that company from trade secrets to copyright must be valued to establish this price. If a company possesses a portfolio of patents, what are they worth?
Why is Intellectual Property Valuation Important?
In the modern business world, intellectual property rights such as patents and copyrights are not just acquired for use but for licensing out to others. Companies view their intellectual property rights as a revenue stream as well as an asset for their use. Selling or licensing intellectual property requires valuation to back the process up with definitive values given to the rights in question.
When two companies want to agree, a royalty rate valuation is a key requirement for this to work. A transaction valuation is necessary to come up with a price that a buyer or seller is content with and believes is justified. The intellectual property licensed out could be an original work, manufacturing process, patent or brand name.