Valuation of IP

Why value your IP

Putting in the time and in some cases, expense to identify and value your IP will:

• Provide a better reflection of the business value
  Record and disclose to shareholders previously 'hidden' balance-sheet assets at realistic amounts to give shareholders a better understanding of the value of the company. This should ultimately be reflected in the company share price or value.
• Provide a tool to measure and manage your assets
  IP is often an important input to production and therefore, a key value driver. Monitoring the value of IP can help provide a realistic view of the business' return on total assets and, as a result, enable management performance to be better gauged.
• Provide security and backing for lenders
  Identifying IP separately on the balance sheet may improve the strength of your balance sheet presentation. This can be useful if funding is sought and a bank requires a certain level of assets to lend against. Intangible assets are increasingly being considered by financiers as valid assets to lend against.
• Provide taxation benefits
  The amortisation of certain identifiable intangible assets and capitalising the value of IP can lead to a reduction in tax liability and aid management in business structuring decisions in the future. Amortisation is the expense that applies to intangible assets, in the same way depreciation applies to non current assets.
• Reduce goodwill on acquisition
  This is also important when a business is being put up for sale because it reduces the proportion of the business' net worth attributed to goodwill. Goodwill is the value to a prospective purchaser in excess of the sum of its identifiable net assets and is a difficult and often subjective asset to value. It includes factors such as a favourable record of management performance or an assembled workforce. If IP is identified and separated from unidentifiable intangibles such as goodwill, in some circumstances it may not have to be amortised.

IP valuation is still under-utilised.

A recent survey by national accounting firm Ernst & Young showed that 69 percent of Australia's top 100 companies by market capitalisation have included some amount for IP assets in their balance sheets.

Of the 77 percent of the top industrial companies that recorded intangible assets on their financial statements, the majority separately recognised and valued at least a part of their total intangible assets. As the above table shows, around 69 percent of the total value of identifiable intangible assets were separately identified as brand names.