There are several great intellectual property (IP) valuation methods to calculate asset value. With the value of IP increasing, valuation regulations and requirements are evolving worldwide. This is because the impalpable nature of IP makes it harder to precisely determine value and define fair prices. Subsequently, it’s essential for larger corporations to perform reliable, accurate IP valuation transactions. As a financial advisor, you’ll want to understand the different valuation practices to reach accurate values that meet global regulations. Read on to learn about the best intellectual property valuation methods to calculate asset value.
First, the income approach is a common IP valuation method. This method sets a value for IP based on how much income it’s expected to generate. Of course, the value can then be adjusted for present day value due to inflation. Ideally, you should use this method for assets that bring in a positive cash flow. In addition, this method is great if you can reliably estimate IP cash flow for future income periods. Plus, it may even be a great choice for IP with a proxy for risk. Surely, one of the best intellectual property valuation methods is the income strategy.
In addition, consider the cost approach for your intellectual property valuation. This approach compares the cost of IP with the similar assets on the market. With this technique, you can determine the IP’s value based on the costs to create an exact replica. This gives you an understanding of the cost for actual replacement, or a similar substitution with equal functionality. Similarly, you can use this approach to measure the expenditure fees related to replacing your assets. Using this technique, always calculate the hard, soft and market costs to determine the precise value. In short, use the cost approach when conducting an intellectual property valuation for your corporation.
Next, use the market technique to perform an intellectual property valuation. This technique reviews how much unrelated parties in the market charge for their IP. When using this approach, find information on IP rights that are comparable to yours. This way, you can verify that your assets are being evaluated fairly to get the best returns on investment capital as possible. To assure your IP’s value is properly compared to other market prices, review multiple resources. Of course, there are many databases that you can access to compare royalty rates. Surely, the market technique is great to compare values when conducting an IP valuation.
Another intellectual property valuation method is options based. Use this strategy to value IP with financial options-pricing methodologies. This method takes any uncertainties related to any exploitable accounts into consideration. It will also factor in possible outcomes to calculate a present value that reflects market uncertainties. If you own technological assets that are subject to new development and commercialization options, this is also a great method to use. Definitely, use the option based intellectual property valuation method to calculate uncertainties.
Furthermore, perform your intellectual property valuations with the qualitative process. This process is highly focused and centered around making internal, informed business decisions. Often, it results in IP valuations using non-monetary means. In addition, this process considers scoring and weighing factors to precisely valuate your assets. Of course, these factors are relative to the market that your assets generate value in. When using this approach, take any internal criteria considerations into account. While this procedure is known to be highly effective, it might leave out your financial, licensing, or damages values during calculation. Certainly, consider the qualitative process to conduct your IP valuation.
There are several best intellectual property valuation methods to calculate asset value. First, the income method determines value based on expected profit. In addition, use the cost approach to compare assets using market value. The market technique compares approximate value with unrelated parties’ prices. Similarly, the options based process examines costs with other financial pricing methodologies. You can also use the qualitative process to value your non-monetary means. These are the best intellectual property valuation methods to calculate asset value.