What Is Calculated Intangible Value (CIV)?
Calculated intangible value is a method of valuing a company's intangible assets. This calculation attempts to allocate a fixed value to intangible assets that won't change according to the company's market value. An intangible asset is a non-physical asset. Examples of intangible assets include patents, trademarks, copyrights, goodwill, brand recognition, customer lists, and proprietary technology.
Because an intangible asset has no physical form and isn't easily converted to cash, calculating its value can be challenging. However, there are times when calculating the value of intangible assets becomes critical. For example, owners looking to sell their company may hire a business appraiser to specifically value the company's intangible assets.
Key Takeaways
- A calculated intangible value (CIV) is a method of valuing a company's intangible assets, which are assets that are not physical in nature.
- Examples of intangible assets include brand recognition, goodwill, patents, trademarks, copyrights, proprietary technology, and customer lists.
- The CIV takes into consideration factors such as a company's pretax earnings, a company's average return on tangible assets, and the industry's average return on tangible assets.
Understanding Calculated Intangible Value (CIV)
Frequently, a company's intangible assets are valued by subtracting a firm's book value from its market value. However, opponents of this method argue that because market value constantly changes, the value of intangible assets also changes, making it an inferior measure.
On the other hand, the calculated intangible value takes additional factors into consideration, such as the company's pretax earnings, the company's average return on tangible assets, and the industry's average return on tangible assets.
Determining CIV
Finding a company's CIV involves seven steps:
- Calculate the average pretax earnings for the past three years.
- Calculate the average year-end tangible assets for the past three years.
- Calculate the company's return on assets (ROA).
- Calculate the industry average ROA for the same three-year period as in Step 2.
- Calculate excess ROA by multiplying the industry average ROA by the average tangible assets calculated in Step 2. Subtract the excess return from the pretax earnings from Step 1.
- Calculate the three-year average corporate tax rate and multiply it by the excess return. Deduct the result from the excess return.
- Calculate the net present value (NPV) of the after-tax excess return. Use the company's cost of capital as a discount rate.
What Is Goodwill As an Assest?
Goodwill is an intangible asset associated with the purchase of one company by another. It accounts for the excess purchase price of the company, and it represents the value that can give the acquiring company a competitive advantage.
Why Is CIV Important?
Calculated intangible value is important because intangible assets can add value to a company and increase revenue and profitability. They are another form of asset that a business can create or acquire, and therefore they are key to a business's finances.
What Are Some Examples of Tangible Assets?
Tangible assets include inventory (raw materials, goods in process, finished products) and fixed assets (equipment, land, buildings, vehicles, etc.) Like intangible assets, they are recorded on the balance sheet, but they are valued differently.
The Bottom Line
It's much easier to calculate an accurate value for tangible assets than intangible assets. Tangible assets—such as product inventory, buildings, land, and equipment—are visible and simple to understand. Because intangible assets are more difficult to value, companies may choose to hire a third-party business evaluator or appraiser to perform the intricate task of identifying the company's unique assets and placing a value on them. When a company is for sale, this process becomes more critical as questions regarding asset value can lead to disputes between buyer and seller.
Despite the valuation difficulties posed by intangible assets, these assets can play a huge role in a company's success. Apple Inc. (AAPL), for example, has spent considerable money and time to develop its proprietary technology and brand recognition—which can be seen in the company's product design, logos, packaging, and slogans—all of which impact Apple's ability to generate profits and sales.
FAQs
A calculated intangible value (CIV) is a method of valuing a company's intangible assets, which are assets that are not physical in nature. Examples of intangible assets include brand recognition, goodwill, patents, trademarks, copyrights, proprietary technology, and customer lists.
What is an example of an intangible value of information? ›
Examples of intangible assets include goodwill, brand recognition, copyrights, patents, trademarks, trade names, and customer lists. You can divide intangible assets into two categories: intellectual property and goodwill.
Which of the following is an example of an intangible asset answer? ›
The examples of intangible assets are: goodwill, patent, copyrights, trademarks.
Which are examples of intangible assets choose every correct answer? ›
Answer and Explanation:
Intangible assets are the fixed assets of a company that cannot be seen or touched meaning thereby that such assets do not have a physical existence. Examples of such assets include goodwill, patents, copyrights, trademarks, etc.
What is an intangible good example? ›
An intangible good is claimed to be a type of good that does not have a physical nature, as opposed to a physical good (an object). Digital goods such as downloadable music, mobile apps or virtual goods used in virtual economies are proposed to be examples of intangible goods.
What is an example of a tangible and intangible value? ›
Examples of tangible assets are machinery, building, vehicles, land. Examples of intangible assets are intellectual property rights, copyright, company logo, goodwill, patents trademarks, etc.
How to calculate intangible assets? ›
The common way to determine the overall total value of a company's intangible assets is to subtract the company's book value [assets minus liabilities] from its market value. The difference is the value of the intangible assets. However, it's also possible to value each intangible asset on its own.
What are examples of intangible values in a person? ›
Those aspects of our lives that we can't measure, touch, or palpate are the most valuable. Education, leadership, mentorship, dedication, self-confidence, loyalty, faith…and the list goes on and on. These are examples of intangibles in our lives.
Which of the following is an intangible value? ›
Intangible assets are commonly held by businesses. They may include brand recognition, goodwill, and intellectual property like patents, trademarks, and copyrights.
What are the three major types of intangible assets? ›
Three specific types of intangible assets are: intellectual property (patents, copyrights, etc), goodwill (including brand recognition), and human capital (employee knowledge and abilities).
Intangible assets are the resources a business owns that cannot be moved, like equipment, or handled, like physical property. These intangible assets include goodwill, patents, trademarks, copyrights and more. They hold a lot of value for your business, even though they aren't physical items you can touch.
What would an item that is intangible be an example of? ›
Intellectual property is one of the most common forms of intangible personal property. Some examples of intangible personal property include image, social, and reputational capital, as well as personal social media pages and other personal digital assets.
Which would not qualify as an intangible asset? ›
Bank accounts or long-term investments where a fixed amount will be received will not qualify as intangible assets because these are monetary assets. This means that items such as trade receivables or loan receivables are not accounted for under IAS 38, even though they do not have physical substance.
What are the top intangible assets? ›
The main types of intangible assets include goodwill, brand equity, intellectual property such as patents, research and development (R&D), and licensing.
What are two examples of intangible fixed assets? ›
Intangible Fixed Assets are non-physical assets that have value to a company. Examples of Intangible Fixed Assets include patents, copyrights, trademarks, or software. Intangible Fixed Assets can be valuable for their potential to generate future revenue, enhance brand recognition, or provide competitive advantage.
How do you calculate intangible book value? ›
Tangible book value is calculated by subtracting intangible assets (intellectual property, patents, goodwill etc.) from the company's book value. Theoretically, PTBV represents the amount of money that shareholders would receive for each share owned if the company were to liquidate its operations.
How to quantify intangible value? ›
But there is a fairly simple and crude way to calculate the value of intangible assets or knowledge within an organization. Just subtract the total assets of the company (fixed assets, investment, profits, whatever appears in the financial reports) from the total market value of an organization, and hey presto.
What is an intangible value in an appraisal? ›
The “International Glossary of Business Valuation Terms” (IGBVT) defines intangible assets as “non-physical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities and contracts (as distinguished from physical assets) that grant rights and privileges, and have value ...
