Intangible Valuation

1
Intangible Valuation

• Chiming Wu, Ph.D., CFA
• Associate Professor
• Department of Finance
• National Chengchi University
• ericwu_at_nccu.edu.tw
• 2006.7.14

2
Introduce myself

• Professional Area
• Business Valuation (with one popular valuation
  case study book)
• Intangible Valuation (nine types of intangibles)
• Merger, Acquisition, and Restructuring
• CFA charter holder (Level II focus on Asset
  Valuation)
• EMBA course Value Creation Strategies

3
Why is this issue important

• Sustainable growth
• The formula g IROIC reinvestment rate needs
  adjustment, Example eBay, IC design, 104 Human
  bank, etc.
• Accounting net worth is not equal to true
  liquidation value
• Example??????
• ?????? lt 0????? Max(?????,??????)
• ?????? ??????????? ??????????
• Valuation Creation (next three slides)
• Example?????????????
• Du Pont Analysis is useless for discovering key
  value drivers
• ??????????????? Human Capital Valuation (Next
  Slide)
• Indirect exploitation- Outright sale / Licensing/
  Join ventures/ Extension/Franchising
• Value of a specific intangible asset is unique to
  specific parties
• ????????
• ???????????
• ?? ???? -?????? - ??????????

4
High Sales/Earnings growth rate with low
tangibles investment rate
5
Measuring and valuing intangible capital in the
wireless communications industry
??? ?? ?? ?? ??? ?? R2
q 50.908 (2.087) 54.532 (3.584) 0.00291 (2.226) _ 0.683
ln(q) 7.114 (3.518) 3.6486 (3.153) 0.00019 (1.884) _ 0.549
q 35.014 (1.321) 62.49 (4.504) _ 0.0074 (2.68) 0.66
ln(q) 6.3027 (2.995) 3.7084 (4.289) _ 0.006 (2.78) 0.556
6
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(?????/????)
(???/????)
7
??????
8
Valuation Issues

• Valuation Purpose
• ????????????? (e.g. ?????????????)
• Ethical issues MBO / ????????
• Valuation methods
• Cost method is value-irrelevance
• Value is max value for ?????? weighting system
  is incorrect.
• ??????WACC (next slide)
• ?????????????????
• ?? FCF or EVA ?????? (missing capital charge)
• ??????(Royalty rate method)?????????
• ????????????????
• Data quality and availability
• ??????/??????
• ??????
• ??????????? (Assuming infinitive life is
  unrealistic)

9
Business Asset Characteristics
Special Purpose
General Purpose
Value in use
Inventory
Receivables
Versatility Market condition
Cash
Tangible
Intangible
Monetary
Risk
Liquidation Value
Return Requirement
15-40
8-10
10-15
Debt
Debt Equity
Equity
Financing
Nonliquid Narrow Market
Versatile
Liquid
Investment Qualities
10
Possible solutions

• Valuation Purpose
• ?????????
• ???????????
• Valuation methods
• ??Cost method???
• ?WACC??????????
• ??????????????????????
• Data quality and availability
• ????????
• ?????????????????