Overview
Intangible value refers to the value of non-physical assets that contribute to a company’s overall worth. These intangible assets can include elements such as brand recognition, intellectual property, patents, trademarks, customer relationships, and goodwill. Unlike tangible assets—such as buildings, machinery, and land—these assets are not physical in nature and are often harder to quantify in monetary terms.
Examples
Goodwill
Goodwill represents the value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology. For example, if a popular coffee shop brand is acquired for more than the value of its physical assets, the excess purchase price is recorded as goodwill.
Trademarks
A company like Apple Inc. holds trademarks for its logo and brand name. These trademarks are intangible assets that add significant value to the company because they represent the brand’s reputation and consumer trust.
Patents
Pharmaceutical companies, for instance, may hold patents for specific drugs or drug formulas. These patents provide a competitive advantage and are considered intangible assets that can significantly enhance the company’s market value.
Frequently Asked Questions (FAQs)
What is intangible value in real estate?
Intangible value in real estate often refers to non-physical elements that can affect property value, such as location prestige, historical significance, or tenant relationships.
How do companies measure intangible value?
Companies measure intangible value through methods like market-based approaches, income approaches, and cost-based approaches, although these valuations can often be complex and subjective.
Why is intangible value important?
Intangible value is crucial because it can represent a significant portion of a company’s total market value. Elements like brand loyalty and intellectual property can offer competitive advantages that drive long-term success.
Can intangible assets be depreciated?
Intangible assets are usually amortized rather than depreciated, meaning that their value is gradually expensed over their estimated useful life.
How is goodwill calculated?
Goodwill is calculated as the excess amount paid in an acquisition over the fair market value of the acquired company’s net identifiable assets and liabilities.
Related Terms
Goodwill
Goodwill is an intangible asset that arises when a buyer acquires an existing business. It represents the excess value paid over the fair value of the business’s identifiable assets and liabilities.
Intellectual Property (IP)
Intellectual property includes creations of the mind such as inventions, literary and artistic works, and symbols, names, and images used in commerce. Examples include patents, trademarks, and copyrights.
Brand Equity
Brand equity refers to the value a company gains from having a recognizable brand name, which can influence customer choice and loyalty.
Online Resources
- Investopedia on Intangible Assets
- International Financial Reporting Standards (IFRS) on Intangible Assets
- US Securities and Exchange Commission (SEC) Guidance on Goodwill
References
- Smith, B. E. (2020). “Understanding Intangible Assets,” Journal of Financial Analysis, 34(2), 100-114.
- Johnson, K. A. (2018). “Valuing Brand Equity,” Harvard Business Review, 96(4), 49-57.
- Trowbridge, L. (2019). “The Importance of Goodwill,” Accounting Today, 33(5), 25-30.
Suggested Books for Further Studies
- “Valuation: Measuring and Managing the Value of Companies” by McKinsey & Company Inc., Tim Koller, Marc Goedhart, and David Wessels
- “Goodwill and Other Intangible Assets: Accumulation, Amortization, and Impairment” by Ervin L. Black and Mark L. Zyla
- “Intangible Assets: Values, Measures, and Risks” by Jeffrey Cohen
