Turning ideas into assets
 

Quantitative valuation

Businesses often connect different values to the same right - it could have one value for its current owner, another for a potential buyer and a third value if it needs to be valued at fair value for the market. Fair value is defined as the price a business will pay for the right on a rational and objective market.

The value is an important element in a trade, and it is therefore critical that the valuation is of high quality. It is therefore recommended that a professional carries out the valuation in order to ensure the best foundations for a successful trade and greatest earnings for your business. The review below of existing quantitative methods should therefore be regarded as a preparation for the meeting with a professional valuer. The review provides you with a better understanding of a valuer's world, language and work tools, so that you can find the right value for your right together. 


Price and value are not the same thing
The price and value of the right are not necessarily the same.  The price is the amount you pay for the right - on the other hand the value is an expression for what the business gets from owning the right.


Three access routes
There are three recognised groups of methods for valuation of rights which place a monetary value on a right. These are spoken about as the cost, income and market based methods.

There are also other methods, e.g. the option method, which is often a combination of the three methods mentioned above.


Which methods fit my right?
None of these three methods is the "correct" one, but you should choose the methods by which you can create the necessary information for calculating the value.  When you use the individual methods, you should always consider both the advantages and limitations in relation to your rights, business and general situation.

The market based methods are good, as long as it is possible to find similar trades and market prices to compare to your right. However, as the market for rights is obscure and fragmented, it is rarely possible to use this method. In this case, we recommend using income based methods, which focus on the future economic potential of the right instead.

The cost based methods can rarely be used when valuing rights. Neither do they take account of the right's potential, nor assume that it is possible to buy or create another right that can replace the one for valuation. IP rights in particular can be so specific that there are no possible replacements.


Use more than one method
It is always recommended that you calculate the value of your right using more than one of the methods. This provides you with a basis for comparison and gives an indication of whether your price is correct.


Approximations and experience will always be subjective
As many of the factors involved in valuation are subjective and based on individual estimates and experience, the individual valuer will, regardless of the method selected, always influence the result in some way.


The three methods
The descriptions of the three valuation methods which can be found in the menu on the right, give a general insight into the methods, but it is up to you and your consultant to produce the correct estimates for the subjective elements as well as to choose the fairest methods.