Data Driven Decisions

Chapter 5Valuing Intangible Assets

Strategic versus Intangible Assets

Now that we have identified the difference between intangible assets, when they matter most, in what situations they matter most, and what defines an intangible asset – such as separability, measurability, and identifiability – we can move into a new set of criteria for intangible assets.

We have discussed how to identify what an intangible asset is, and we have discussed how to identify when an intangible asset matters most. We have also explored which scenarios can influence the valuation of intangibles in one instance more than another. What we now need to address is how these variables can come together to affect value. But first, what is value?

Quite simply, value is the dollar amount that is assigned to an asset or to a distinct set of assets that someone will pay for. If a pencil is valued at a million dollars based on its raw materials, based on its scarcity in the market, and based on its demand from investors, then people will pay one million dollars for the pencil.

It is important to realize that valuation is partly intellectual, but it is also a business exercise. For the pencil to be worth one million dollars, the pencil must be purchased for one million dollars. Valuation is not an exercise in a vacuum based on mathematics alone. It is an exercise based on human behavior, economics, and on the market – what amount of money buyers or investors are willing to spend.

The definition of value as ...