Initially tangible assets were regarded as the main source of business value
The market was aware of intangibles, but their specific value remained unclear and was not specifically quantified
Brands, technology, patents and employees were always at the heart of corporate success, but rarely explicitly valued.
10/18/10 - BY ANKIT GOR
Introduction & evidence of brand valuation The increasing recognition of the value of intangibles came with the continuous increase in the gap between companies’ book values and their stock market valuations, as well as sharp increases in premiums above the stock market value that were paid in mergers and acquisitions in the late 1980s. 10/18/10 - BY ANKIT GOR
Do brands create value for anyone other than their owners?
Is the value they create at the expense of society at large?
10/18/10 - BY ANKIT GOR
Social value of brands Brands are accused of stifling competition and tarnishing the virtues of the capitalist system by encouraging monopoly and limiting consumer choice. The opposing argument is that brands create substantial social as well as economic value as a result of increased competition, improved product performance and the pressure on brand owners to behave in socially responsible ways. 10/18/10 - BY ANKIT GOR
Social value of brands Competition on the basis of performance as well as price, which is the nature of brand competition, fosters product development and improvement. 10/18/10 - BY ANKIT GOR
Discounted cash flow : A classic approach to the financial evaluation of any investment whether material or intangible.
This is the model-type for evaluation by means of discounted net anticipated cash flows.
10/18/10 - BY ANKIT GOR
Value of a brand N = ∑ RBt / (1+r)t + residual value/(1+r)n t = 1 = Anticipated revenue in year t, attributable to the brand r = discounting rate Residual value beyond year n RBn/r or RBn/r-g g= Rate of revenue growth 10/18/10 - BY ANKIT GOR
Multiple methods Market value of equity Firm : P/E = Known profits Brand equity Brand Multiple = Brand net profits 10/18/10 - BY ANKIT GOR
Stages to determine Brand Multiple 10/18/10 - BY ANKIT GOR
“ If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.” -John Stuart, Chairman of Quaker (ca. 1900) 10/18/10 - BY ANKIT GOR
HUMAN CAPITAL VALUATION 10/18/10 - BY ANKIT GOR
The concept of value has essentially two different meanings. 'Value' expresses the utility or service of a particular resource (e.g. the future use of a capital asset) and the purchasing power of the resource (e.g. money, securities).
If an object is not capable of rendering future economic services in the form of utility to the possessor, no value can be attached to it.
Human Resource Valuation means identifying and measuring value of human resources and communicating the information to the interested parties.
Historical cost method: The method suggests capitalizing the firm’s expenditure on recruitment, selection, training and development of employees and treats them as assets for the purpose of human resource accounting.
Replacement cost method: This method involves assessment of replacement cost of individuals, and rebuilding cost of the organization to reflect HR asset value of both the individuals and the organization. However, the replacement cost may not reflect either the actual costs or the contribution associated with HR.
Opportunity cost method: This model envisages computation of monetary value and allocation of people to the most promising activity and thereby to assess the opportunity cost of key employees through competitive bidding among investment centers.
Behavioral Model: This model aims to establish a set of casual variables through psycho- social test results reflecting the appreciating or depreciating condition of human organization as reflected by a set of intervening variables, which in turn, are likely to result in the achievement of the end result variables.
Economic model: Lev & Schwartz advocated the estimation of future earnings during the remaining life of the employee and then arriving at the present value by discounting the estimated earnings at the employee's cost of capital.
Good will (Rs in thousands) 10/18/10 - BY ANKIT GOR March 31, 2008 March 31,2009 Balance ( beginning of the period) 23683549 27043223 Additions 3427020 10834 Valuation allowance reversals (67,346) - Balance ( end of the period) 27043223 27054057
Other intangible assets (Rs in thousands) 10/18/10 - BY ANKIT GOR Particulars March 31, 2008 Less Amortization March 31, 2009 Less Amortization Software 83,993 83,993 1,00,458 88,659 Bandwidth 20,96,218 96,346 33,63,064 3,07,261 Licences 63,59,042 29,87,002 63,59,402 34,27,900 Licence entry fees 1,08,16,027 31,15,513 1,08,97,940 36,97,713 Brands 1,10,514 92,250 1,10,514 94,990 Distribution networks 11,34,508 11,344,188 11,34,508 11,34,484 Customer relationships 7,28,840 7,23,639 7,28,840 7,28,004 Other intangibles 1,54,659 47,234 1,54,659 60,874 Total 2,14,84,161 82,80,165 2,28,49,385 95,39,885 NET 1,32,03,996 1,33,09,500
Projects the direct & indirect benefits enjoyed by the employee till retirement
Discounts CTC at the WACC to arrive at the present value.
HUMAN RESOURCES VALUATION 10/18/10 - BY ANKIT GOR
HUMAN RESOURCE VALUATION AT INFOSYS Assumption : cost of capital 12.18% (Rs. in crores) 10/18/10 - BY ANKIT GOR 2009 2008 Employees no. Software professionals 97349 85013 Support 7501 6174 Total 104850 91187 Value of Human Resources Software professionals 95600 92331 Support 6533 6490 Total 102133 98821
Brand Value = Brand Strength multiple X Brand earnings
BRAND VALUATION 10/18/10 - BY ANKIT GOR
INFOSYS-BRAND VALUE Rs. in crores 10/18/10 - BY ANKIT GOR 2009 2008 2007 Profit before interest and tax 6907 5344 4245 Less: non-brand income 426 634 335 Adjusted profit before tax 6481 4710 3910 Inflation factor 1.0000 1.092 1.192 PV of brand profits 6481 5142 4660 Weighted factor 3 2 1 Weighted avg profits 5731 - - Remuneration of capital 801 - - Brand related profits 4930 - - Tax 1676 - - Brand earnings 3254 - - Brand multiple 9.94 - - Brand value 32345 - -
Infosys : Intangible assets Intangible Assets / Total Assets = 88.7% In Rs. in crores 10/18/10 - BY ANKIT GOR 2009 Total Assets 152732 Intangible assets Brand value 32345 Human Resources 102133 135478