Valuation of intellectual property

Little argument on intellectual property (IP) would happen if it had no value for the owner. The principle of valuing intellectual property is to determine the future revenue related to its property (Smith & Parr: Enhancement of intellectual property and intangible assets, 3rd Edition, Wiley, 2000). Note that the value of intellectual property is generally independent of the cost.

Determination of future revenues requires the estimation of revenue due to the intellectual property in each of the coming years, during his lifetime, ie, the quantity sold and the net income per unit after routine Sales costs are deducted. If intellectual property is used internally, then the savings due to possess the same way it can be estimated. The risk that intellectual property becomes obsolete is high, and reduce the current value. Without risk, future income is discounted using a risk-free interest rate. Risks include unexpected competition, unauthorized copying, patent infringement or invalidation, and the loss of trade secrets. With such risks, increasing the discount rate, based on the beta coefficient expected. With the discount rate high, sales that occur far into the future have little effect, simplifying the determination of the net present value of intellectual property included.

When the elements to assess contain multiple IP components, and the proportion in the life of each component is to be determined. This situation exists in small, as for software that receives updates throughout the future, and in general, for companies that sell many products. The shareholders of public companies, in fact estimate the total intellectual property of a business, providing a market capitalization through the price they are willing to pay for actions, which is the sum of the carrying value and intellectual property belonging to the company.

US Generally Accepted Accounting Principles (GAAP) do not allow registration on the books of intellectual property businesses, [edit] which makes it difficult for investors to be rational on the share price. IP is generated mainly through research, development and advertising (IP-generating expenses or IGE), which makes it difficult to assess the effectiveness of GOI. Companies participating in the knowledge economy generally have a market capitalization which is a major factor greater than their book value, the sum of its tangible assets and cash. Normally, it is only when a company was purchased will be purchased intellectual property appear as part of the purchase price allocation required by the International Financial Reporting Standards Number 3 (IFRS 3) on business combinations.