Valuation Effort Required Circumstance Expected Degree of Scrutiny Level of Effort Required Litigation Very High Large Tax-Related Ventures High Large Joint Ventures High Large Intra-Company Transfers High Large
Valuation Effort Required (cont.) Circumstance Expected Degree of Scrutiny Level of Effort Required Business Decision Making Medium Medium Licensing (Sale & Purchase) Medium Medium In-Kind Contribution Medium Medium R&D Investment Medium Medium
This method is based upon the principle that an IP asset must produce a net economic benefit during its life in order to have any value i.e. the benefit of the asset over its lifetime must exceed cost.
The net economic benefit must be sufficiently large to provide a rate of return with the investment risk.
Discounted cash flow (“DCF”) analysis sits is probably the most comprehensive of appraisal techniques. Potential profits and cash flows needs are assessed to arrive at the present value through use of a discount rate, or rates.
The projection of market revenues will be a critical step in the valuation using this analysis. The potential will need to be assessed by reference to the enduring nature of the asset, and its marketability, and this must subsume consideration of expenses together with an estimate of residual value or terminal value, if any. This method recognizes market conditions, likely performance and potential, and the time value of money. It is illustrative, demonstrating the cash flow potential, or not, of the property and is highly regarded and widely used in the financial community.