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Trademark valuation is the process by which trademarks, or intangible assets, are valued, often monetarily. Valuation of trademarks can be essential to many business interactions, including sales and mergers, licensing stipulations, and bankruptcy claims. Knowing the value and, equally importantly, the change in value of a trademark can also aid in financial reporting.
A trademark creates value by inspiring loyalty, influencing purchasing, and increasing the ability to charge higher prices. In addition to creating market value, trademarks can be monetized to increase capital through licensing or collateralization. A trademark can be a name, brand, or logo. Trademark valuation is thus important when assessing market value, image, and financial standing.
Like any intellectual or non-monetary assets, trademarks are difficult to value because there are many ways to calculate said value. Trademarks, for example, do not stand alone, and their value depends directly on other assets, including the product or service offered by the organization. Although it would therefore be helpful to have a universal way to complete trademark valuation, methods can be industry and even business specific.
Valuation methods are chosen by first assessing valuation purpose; calculations for financial reporting or transactions may be different from those used for litigation or bankruptcy, for example. Many of these valuation techniques begin with a historical overview and profile of the organization and its trademark. A historical understanding of the business and trademark can help the valuing source choose the most appropriate approach to valuation. Methodologies then take description, the asset use, and its audience into account when completing an initial background.
One method to attribute value to trademarks is through the income approach. In this approach, the discounted cash flows or capitalization of earnings methods are often used to estimate the value of anticipated future profits due to the trademark. This calculation takes the net present value of future profits.
A market approach to trademark valuation compares the pricing of similar trademarks in the market. The characteristics used to compare trademarks across organizations vary, however. Once comparable trademarks have been chosen, analysis of royalty rates and transaction prices is used to determine the market prices for similar assets.
The cost approach to trademark valuation attempts to value trademarks by calculating the cost it would require to recreate them. Calculating costs, however, does not necessarily account for value added or lost, making this a particular methodology. A cost calculation can include present value historical costs of trademark creation.
There are many different approaches to valuing intangible assets, and trademark valuation is just one example. Whatever method used, consistency, understanding, and full disclosure are important. Many businesses consequently seek out a professionally recognized third-party valuation, although this is not always required.