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    Brand Valuation

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    Swati Sawant
    This document discusses several methods for valuing brands: 1. The cost approach values a brand based on the historical or replacement costs incurred in developing the brand through activities like R&D, marketing, advertising. However, costs do not always correlate with brand value. 2. Market-based methods value a brand based on what it could be sold for in the open market, using similar brand transactions as a reference. However, the market price may include overpayment elements. 3. The discounted cash flow (DCF) approach values a brand based on the present value of the future cash flows expected to be generated by the brand, discounted at an appropriate rate. 4.

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    Brand Valuation

    Uploaded by

    Swati Sawant
    111 views15 pages
    This document discusses several methods for valuing brands: 1. The cost approach values a brand based on the historical or replacement costs incurred in developing the brand through activities like R&D, marketing, advertising. However, costs do not always correlate with brand value. 2. Market-based methods value a brand based on what it could be sold for in the open market, using similar brand transactions as a reference. However, the market price may include overpayment elements. 3. The discounted cash flow (DCF) approach values a brand based on the present value of the future cash flows expected to be generated by the brand, discounted at an appropriate rate. 4.

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    This document discusses several methods for valuing brands: 1. The cost approach values a brand based on the historical or replacement costs incurred in developing the brand through activities like R&D, marketing, advertising. However, costs do not always correlate with brand value. 2. Market-based methods value a brand based on what it could be sold for in the open market, using similar brand transactions as a reference. However, the market price may include overpayment elements. 3. The discounted cash flow (DCF) approach values a brand based on the present value of the future cash flows expected to be generated by the brand, discounted at an appropriate rate. 4.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    111 views15 pages

    Brand Valuation

    Uploaded by

    Swati Sawant
    This document discusses several methods for valuing brands: 1. The cost approach values a brand based on the historical or replacement costs incurred in developing the brand through activities like R&D, marketing, advertising. However, costs do not always correlate with brand value. 2. Market-based methods value a brand based on what it could be sold for in the open market, using similar brand transactions as a reference. However, the market price may include overpayment elements. 3. The discounted cash flow (DCF) approach values a brand based on the present value of the future cash flows expected to be generated by the brand, discounted at an appropriate rate. 4.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 15

    Brand Valuation

    Brand
    According to Philip Kotler A brand is a name,

    term, sign, symbol or a combination of them which is intended to identify the goods or services of one seller to differentiate it from those of competitor.
    According to J. Hugh Davidson A brand enable

    consumer to identify product or services which promise specific benefit. They arouse expectations in the minds of customers about quality, price, purpose and performance. A brand stands out from commodity because it lacks identity.

    Cost approach
    The value of Brand may be obtained by aggregating the

    cost (historical costs or replacement costs) incurred in developing the intangible asset.
    The cost taken into consideration are research and

    development, market testing, promotion and advertising.


    The main issue is ascertaining the cost associated with the

    brand.
    The demerit of this approach is that the value of an asset

    reflects the benefits that are expected from it and there is hardly any correlation between the expenditure on an intangible asset and its value.

    Estimating Brand Value with Selling & Advertising Expense


    Year Selling & advertising exp 1000 1100 1200 1300 1400 Portion of S&A exp related to brand value 500 550 600 650 700 Amortized expenses Unamortize d expenses

    1 2 3 4 5

    50 55 60 65 70

    0 55 120 195 280

    6 7
    8 9 10 Value of

    1500 1600
    1700 1800 2000

    750 800
    850 900 1000

    75 80
    85 90 100

    375 480
    595 720 900 3720

    Cost basis of Valuation


    Historical Cost Advantages Disadvantages Replacement cost Advantages Disadvantages

    Identifies direct and indirect cost attributable to a brand

    Measures non cash cost

    Identifies possible substitutes


    Estimates the cost of replacement

    Ignores the distinct feature of a brand


    Is highly subjective in nature

    Aggregate cost estimate the brand

    High expenditure does not imply high brand value

    Market Based Methods


    Market based methods signify the value at which the brand can be sold in the open market.

    Advantages Uses similar brands for purchase as a base Modifies brand value according to features of a brand

    Disadvantages Assumes market for similar brands Price paid may include element of overbid

    The DCF Approach


    The value of an intangible is determined by

    estimating the cash flows or earnings expected to be generated by the intangible asset and then capitalizing it by using an appropriate discount rate.

    Interbrand Method
    Interbrand is a U.K based marketing consultancy

    that pioneered the brand valuation formulary approach.


    The method considers the potential earnings of

    the firm that is multiplied with brand earnings.


    they have formulated two concepts

    a. brand multiple b. brand strength

    Brand Multiple
    It is the ratio of brand equity to brand net profit and measures the brand strength.
    The formulary method comprises the following steps

    1.

    Determine the weighted average profit of the brand for three years an after tax basis generated by the brand. The years are previous years, current year and next year.
    Determine the industry P/E multiple. The P/E ratio multiplied by brand strength gives brand multiple. P/E = market price per share/earnings per share BM = P/E * BS

    2.

    3. Brand value is the product of weighted average after tax profit multiplied by brand multiple.

    Brand Strength
    This is a function of seven brand attributes
    1. 2. 3. 4.

    Is the brand the market leader? leadership of brand


    How much is the consumer loyalty for the brand? stability of brand What is the future of the brand vis-avis its competitor? market prospects How much is the national and international presence of the brand? international and national potential

    5.

    What are the long term and short term trends of in brand image and awareness?trend of image and awareness

    6. 7.

    How much is the investment in the brand? support


    How much legal protection does the brand have from others in the same trade?legal protection of the brand

    Illustration
    The score for the seven brand attributes of a given brand are shown in the table below. What is the brand strength and brand multiple, the P/E of the industry is 18 and average profit is 30 million?

    Factors Leadership Stability Internationality Support Protection Market

    Max score 25 15 15 15 5 5

    Example 20 4 6 10 4 1

    Trend Brand strength

    20 100

    10 55

    Illustration
    The table shows the brand strength scores for the three brands A, B and C having brand strength of 76, 54, and 46 respectively. If the industry P/E is 12 , then what is the brand multiple for the three brands?

    Factors Leadership Stability Internationalit y Support Protection Market Trend Brand strength

    Max score 25 15 10 25 10 10 5 100

    Brand A 19 12 07 18 7 8 5 .76

    Brand B 19 9 6 5 5 7 3 .54

    Brand C 10 7 8 2 7 8 4 .46

    Illustration
    Brand Fortuner of Fortuner PLC has operating profit for the current year

    equal to Rs 10,000 million which is likely to grow at 15%. The previous years operating income was Rs 8500 million. The industrys P/E ratio is 12. If the tax rate is 35% and the score for brand attributes is given in the table below, determine its brand value by Interbrand method. Factors Leadership Stability Internationality Support Max score 25 15 15 15 Example 10 4 6 10

    Protection
    Market Trend Brand strength

    5
    5 20 100

    10
    1 10 51

    The Royalty Relief Method


    This method is based on the premise that if a

    company lets its brand for commercial purpose to another firm the royalty the second firm would pay for the use of the trade mark of the first firm is the brand value.
    The net present value of the cash flows (at a

    given royalty rate) arising to brand holding company is the value of the brand

    Illustration
    Find out the value of the brand A using the

    following information.
    Sales revenue Growth rate Royalty rate Useful life of brand in years Discount rate Tax rate

    6,00,000 5% 6% 6 10% 35%

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