Brand Valuation

Vikrant Yadav MS- 57

Iwan Taso Lepcha MS-
Kunal Pyage MS-
Bharat Patodi MS- 65
 "If this business were split up, I would give you the land and bricks and
mortar, and I would take the brands and trade marks, and I would fare
better than you.“- John Stuart, Chairman of Quaker in 1990

“Brand valuation is the process used to calculate the value of brands”

Today, leading companies focus their management efforts on intangible
assets. For example, the Ford Motor Company has reduced its physical
asset base in favor of investing in intangible assets.
 THE BACKGROUND
In early 1988, Nestle (UK) made a
bid for Rowntree, with more than
twice the Company’s market
capitalization
Mc Dougall started capitalizing the
brands that they owned or acquired,
implying that these brands
possessed hidden values.
Service sector companies like The
Daily Telegraph Ltd, Lonhro plc etc
have valued their brands and
showed them in balance sheets
Thus began the hottest debate on
brands in Balance Sheet
If brands can be shown as separable
assets, they need not be written off, as
goodwill should be
Brands should be fully amortized over
their useful economic life of upto 20
years except in special circumstances
Homegrown brands are not allowed to
be shown in the balance sheet, as it is
very difficult to identify the cost of the
brand developed
Many companies have incorporated
brand values in their balance sheets.
There is a distinction between brands
and goodwill in UK practice
Like Goodwill, brands should be written
off immediately upon acquisition. 
WHY BRANDS SHOULD BE
INCLUDED IN BALANCE SHEET? 
Traditional view
• Balance sheet is not intended as a statement of corporate worth and that
subsequently, inclusion of values of brands in fixed assets would mislead
the figures in the balance sheet. 
• The view that only those assets which have substance or spatial dimension
should be properly considered as a ‘valuable asset’ for accounting purposes
is questionable. Any value fixed on a given brand is dubious, but many of
the fixed assets that are shown in balance sheets have similar contestable
figures
• Shareholder has the right to be appraised of the totality of assets that are
available with the company
• Understatement of intangible assets like brands, when the company is using
them to earn profits is not useful to the shareholders in judging the
efficiency of management.
• We do value real estate on the basis of the future income. Similarly brands
should be valued based on their future earnings potential
• Adventurous bankers, (in UK), have started to talk about issuing backed
 METHODS OF VALUATION
Methods
• Valuation based on the aggregate cost of all
marketing, advertising and research and
development expenditure devoted to the
brand over a stipulated period.
• Valuation based on premium pricing of a
branded product over a non branded
product
• Valuation at market price
• Valuation based on customer related factors
such as esteem, recognition or awareness
• Valuation based on potential future
earnings discounted to present day values
Drawbacks
• Brand value is not always a function of the
cost of its development. If it were so failed
brands may well be attributed high values.
•  The major benefits of branded products to
manufacturers often relate to the security
and stability of future demand rather than to
premium pricing. Further many branded
products have no generic equivalents.
• Brands are not developed with the purpose
of trading in them. Moreover the use of
market value for balance sheet purposes is
prohibited by the companies act.
• A brand valuation based solely on
consumer esteem or awareness factors
would bear no relationship to commercial
reality. Not may of those who are aware
would actually buy it.
• Discount values of future potential earnings
of the brands seems to be an appropriate
one. But the determination of reliable
forecast cash flows is fraught with
difficulty.
Ways to Analyze the Value
Legal analysis
• Brand valuation should include an assessment of the legal protection afforded to the
brand in each geographical jurisdiction and product or service registration category.
These legal rights vary between legal systems and need to be carefully considered
when forming the brand valuation opinion.
Behavioral analysis
• The brand valuer must understand the market size and trends, contribution of brand
to the purchase decision, attitude of all stakeholder groups to the brand and all
economic benefits conferred on the branded business by the brand.
Financial analysis (3 approaches)
• Market approach, measures value by reference to what other purchasers in the market
have paid for similar assets.
• Cost approach, measures value by reference to the cost invested in creating,
replacing or reproducing the brand.
• Income approach, measures value by reference to the economic benefits expected to
be received over the remaining useful economic life of the brand. This involves
estimating the expected future, after-tax cash flows attributable to the brand then
discounting them to a present value using an appropriate discount rate.
 Income Approach
Royalty Relief method
• This assumes that the brand is not owned by the branded business but is licensed in from a third party.
The value is deemed to be the present value of the royalty payments saved by virtue of owning the
brand.
Price Premium and Volume Premium methods
• The Price Premium method estimates the value of a brand by reference to the price premium it
commands over unbranded, weakly branded or generic products or services.
• The Volume Premium method estimates the value of a brand by reference to the volume premium that it
generates.
Income-split method
• This method starts with net operating profits and deducts a charge for capital employed in the branded
business, to arrive at ‘economic profits’ attributable to total intangible capital employed. Behavioral
analysis is then used to identify the percentage contribution of brand to these intangible economic
profits.
Multi-period excess earnings method
• The values of each tangible and intangible asset employed in the branded business (other than the brand)
are valued using a variety of valuation approaches and methods depending on what is considered most
appropriate to each asset. A charge is then made against earnings for each of these assets, leaving
residual earnings attributable to the brand alone.
Incremental cash flow method
• The incremental cash flow method identifies all cash flows generated by the brand in a business, by
comparison with comparable businesses with no such brand. Cash flows are generated through both
increased revenues and reduced costs.
Thank You