You might have heard the term “intangible assets” and assumed that they were not as valuable as tangible assets like land, furniture, and machinery. However, in today’s business world, intangible assets like patents, copyright, trademarks, goodwill, and intellectual property are understood to be one of the most valuable assets in a company.
Intangible assets, by definition, are assets that cannot be seen, touched, or physically measured. But, did you know that valuing intangible assets in Singapore is essential? In this article, we will cover the concept of intangible assets valuation and look at some benefits of valuing intangible assets in your Singapore business.
Before we get into the details and benefits of intangible asset valuation in Singapore businesses, let’s take a look at what intangible assets are. Intangible assets are assets that do not have a physical presence or physical form. Some of the intangible assets include copyrights, trademarks, patents, goodwill, and even brand logos.
Intangible assets can either be internally generated or purchased from another external source. Examples of intangible assets include brand recognition, copyrights, and website content. In addition to these, there are other forms of intangible assets such as domain names and trademarks, that can be owned by companies in Singapore.
What are Intangible Assets?
The assets that lack a physical component are known as intangible assets. This kind of asset enables the company to be more unique, innovative, and competitive in the commercial sector due to its potential to create long-term value.
In the real world, intangible assets are those assets that are particular to each business in terms of their reputation, culture, knowledge, ongoing development, and understanding of their customers. Therefore, they can be utilized to create a competitive advantage and distinguish one business from another.
What are the Types of Intangible Assets?
In practical terms, the assets that are valuable for a company, however, cannot be seen or touched, are all intangible assets. The types of intangible assets can be classified into the following categories:
- Intellectual property – Intellectual property is an asset that consists of information and knowledge, which are typically unique, original, and valuable. Patents and trademarks are examples of intangible assets that shield the business from unauthorized duplication or replication.
- Goodwill – Goodwill is a type of intangible asset that is determined by a variety of factors, including the reputation, growth, and nature of a company. It is the difference between what a business is worth before the acquisition and what it is worth after the acquisition. As a result, it is often one of the most valuable types of intangible assets.
- Brand equity – Brand equity refers to the value of a company’s name, product, or service. A brand’s value is determined by the standard of its goods and services, promotional efforts, corporate standing, and devoted clientele. One of a company’s key intangible assets that stem from consumer perceptions is brand equity.
- Other intangible assets – In addition to the intangible assets above, other types of intangible assets can contribute to the value of a company. These include trade names, brand recognition, customer loyalty, contracts, software, data, and more.
When Should Intangible Assets be Valued in Singapore?
There are various situations when it is important to value intangible assets in Singapore. Below mentioned are some of the common instances where intangible asset valuation in Singapore can prove beneficial.
- For financial reporting – The financial reports of a business can easily be managed and analyzed if intangible assets are valued and recorded accurately. This will help in better decision-making and forecasting.
- To facilitate transactions – Intangible asset appraisal is important when a business considers a merger or acquisition (M&A), the sale or purchase of assets, or licensing. In this regard, intangible assets valuation is used to make sure that each party receives a fair price.
- For tax purposes – Oftentimes, intangible assets are evaluated for taxation purposes. You must determine the worth of your company’s intangible assets to manage your estate or gift planning and even for transferring intangible assets.
- For resolving disputes – Intangibles are valued during the dispute resolution process because they are a component of how claims are settled. The intangible asset value is a key component of many claims, including administrative, bankruptcy, and infringement.
- To raise funds – The value of your intangible assets may be considered when you are looking to raise funds. Whether you are seeking a loan or trying to sell shares, you should consider intangible assets valuation.
Intangible Asset Valuation
Now that you know what intangible assets are when to value them, and the types of intangible assets, it is important to understand the process of valuing a company’s intangible assets.
In the following section, we will learn about intangible asset valuation and discuss some common methods that may be used to determine a company’s intangible asset valuation in Singapore.
Why is Intangible Asset Valuation Important?
Intangible assets are very valuable and beneficial to a company. As stated earlier, intangible assets are assets that are not physical and can only be developed or obtained through a combination of skills, knowledge, and relationships. For you to manage your intangible assets efficiently and effectively, here are some of the reasons why you should value your intangible assets:
- Understand your company’s financial performance – Intangible assets can help you analyze your company’s financial performance in different ways. You can identify whether intangible assets are functioning properly and contributing to the financial health of the business.
- Have a better grasp of your company’s valuation – Valuing intangible assets will give you a better understanding of your company’s overall financial standing. Since intangible assets contribute to the value of a business, you can use them to assess the valuation of the business.
- Identify problems and opportunities – When a business has identified the value of intangible assets, it can pinpoint the problems that they want to solve and the opportunities they want to capitalize on. This will help in better management of intangible assets as well as greater growth potential.
- For M&A transactions – When a business is involved in M&A, it is important to value the intangible assets and make sure that both parties are getting a fair deal. Intangible assets valuation is an important step in making sure that you do not overpay or underpay.
- To facilitate governing and management – In some situations, intangible assets can be very costly to maintain. Therefore, it is very important to identify them and value them specifically. This will help you in your governing and management activities.
Common Methods of Intangible Asset Valuations
Well, now that you know why intangible assets valuation is important, let’s talk about some of the most common methods for valuing intangible assets. Here are a few methods you can use to value your intangible assets:
- Income-based approach – The most widely used method for valuing intangible assets is the income approach. This method involves projecting the potential earnings, income, or potential of a company’s intangible assets to assess the value of the intangible asset. The outcome indicates the Net Present Value (NPV), which the prospective purchaser can use to determine if the NPV valuation is positive or negative.
- Market-based approach – A business’s intangible assets are valued using the market technique by comparing them to similar transaction prices or market values. In essence, you may allocate the valuation of the intangible assets by looking at similar or identical market-based transactions of intangible assets which have previously been transferred at arm’s length. However, having a reliable source that can offer the data for comparison is crucial.
- Cost-based approach – The cost-based approach is one of the most popular and easiest methods used to value intangible assets by looking at the total costs including development expenses, marketing expenses, advertising costs, and some other communication costs, as well as any historical expenditures or replacement costs. The expected replacement cost of that specific intangible asset equals the value of the intangible asset, and thus, the value of the intangible asset is derived from the expected total costs.
What are the Considerations for Intangible Asset Valuation in Singapore?
When determining the value of your company’s intangible assets, there are a few key considerations that valuers need to keep in mind. The following are some of the elements that are crucial for determining the value of intangible assets:
- Intangible assets valuation requires due diligence as well as accurate information should be gathered from all pertinent sources. You must make sure you have access to all the records needed for valuation, including complete financial statements.
- You must examine each of the three valuation techniques used to value intangible assets. Select the best valuation strategy, then examine all pertinent data to confirm the methodology.
- You must be familiar with the meaning and range of intangible assets to value intangible assets. The process of identifying the intangible asset is crucial because it affects how the company accounts for its intangibles.
Overall, it’s clear that valuing intangible assets in Singapore businesses can lead to numerous benefits. Not only can it help with shareholders’ decisions, but it can also improve accounting practices and future investments.
Moreover, it provides managers with greater insight into the company’s value, enabling them to make more informed decisions on where to allocate resources. Although the process of valuing intangible assets may seem complex and time-consuming at first, once completed it can provide a number of positive outcomes.
To sum up, valuing intangible assets should be seen as an investment in the long-term success of your business. Taking the time to thoroughly investigate the full extent of any potential advantages could enable you to make better decisions for your organisation and create a more attractive proposition for investors.