Corporate Brand Valuation: Residual Contribution Method

Business
Enterprise
Valuation
Monetary and Tangible
Asset Isolation
Accounting Intangibles
(Excluding Brand)
Non‐Accounting
Intangibles
(Excluding Brand)
Pure Goodwill
Residual and
Implied Royalty
on Brand
Revaluation of
Primary
Intangibles with
CAC to Brand
B = GP + RB
Residual
Contribution
Method
Copyright © 2015 Beacon Valuation Group LLC 1

Presented by:
René Hlousek, ASA‐BV/IA, MRICS
Beacon Valuation Group LLC
San Francisco, CA • Guam, U.S.A.

 What is Corporate Brand……...from a Valuation Standpoint?
 Universe of Attempts to Value Brand – Traps & Shortcomings
 Moving Beyond Current Threshold: Residual Contribution Method
 Tapping into the Wealth of Financial Reporting Valuation Concepts
 Setting Boundaries for Asset Group Values
 Value Drivers: Examination of Accounting vs. Non‐Accounting Intangibles
 Purification of Goodwill – Application of Filters
 Key Step toward Valuing Brand: Exclude it First!
 Path to Brand Royalty Rate – Without the Reliance on Generic Market Data
 Isolating, Extracting, and Unifying Residuals – The Essence of Brand Value
 Practical Overview of Analytical Flow and Synthesis
 Appendix: About the Presenter

 Corporate brand, as opposed to product brands, is a single umbrella image that
groups together the experiences, values, and images of a corporation’s panoply
of activities.
 Can be depicted as a network of knowledge about a company stored in the
mind of the target communities such as: Customers, employees, shareholders,
investors, journalists, analysts, business partners, and competitors
 Although a corporate brand is defined partly by identifiable intangible assets,
such as a company trade name, trademark, or logo, all of which can be legally
protected, the greatest value of a corporate brand is even more intangible than
these assets.
 Unlike product brands, or other intangible assets held by a company, corporate
brands cannot be separated from the rest of the assets, without substantially
diminishing the value of the majority of the company’s intangible assets or the
overall business enterprise housing them.
 Brand equity is a phrase used in the marketing industry which describes the
value of having a well‐known brand name, based on the idea that the owner of
a well‐known brand name can generate more money from products with that
brand name than from products with a less well known name.

 The term Goodwill is defined by different bodies in ways that differ
significantly.
 IRS Glossary to Publication 551 ‐ defines goodwill as “the value of a trade or
business based on expected continued customer patronage due to its name,
reputation, or any other factor.” [NOTE THE SIMILARITY TO DEFINITION OF
“BRAND”]
 The International Glossary of Business Valuation Terms defines goodwill as
“that intangible asset arising as a result of name, reputation, customer loyalty,
location, products, and similar factors not separately identified.” [NOTE THE
SIMILARITY TO DEFINITION OF “BRAND”]
 Goodwill derived from financial reporting (accounting) guidance as “the
premium that a buyer would be willing to pay for an entity over the net of the
amounts assigned to assets and liabilities of the business. This “premium”
amount recognized as goodwill includes acquired intangible assets that do not
meet the economic criterion for recognition as assets apart from goodwill.”

 Does not consider brand earnings potential
 Fails to distinguish strategic/financial component of brand value from legal aspects
of ownership
 Overreliance on incomparable market data
 Quantitative relation between a specific brand element and a financial metric has
not been established
 Qualitative relation (awareness impacts loyalty) is more common sense than
science, and provides only little practical use for the valuation community
 Point systems, although providing valuable marketing data to brand managers, are
highly dependent on the relevance of their surveys and target audiences to the key
valuation drivers of a corporate brand
 More applicable to single product brands – not corporate
 Inappropriate inclusion/exclusion of brand value drivers
 Does not examine influence on/from intangibles other than brand
 Does not remove/reduce subjectivity – only moves it
 Does not incorporate the full spectrum of risk inherent in the different asset groups
employed by the business enterprise

Business Enterprise
Valuation
Asset Isolation
(Excluding Brand)
Non‐Accounting
Intangibles
(Excluding Brand)
Pure Goodwill
Residual and
Implied Royalty
on Brand
Revaluation of Primary
Intangibles with CAC to
Brand
B = GP + RB
Residual
Contribution
Method

FMV of Long
Term Interest
Bearing Debt
+
FMV of Equity
FMV of
Intangible
Assets
FMV of Tangible
Assets
+
Net Working
Capital
+
FMV Value of
Invested Capital
= =
Investing Approach Operating Approach

 BEV = MA + TA + IA, where:
 BEV = Business Enterprise Value
 MA = Monetary (financial) Asset Value (Net Working Capital)
 TA = Tangible (fixed) Asset Value
 IA = Intangible Asset Value (including Accounting Goodwill)
 By default, the BEV represents the upper limit of value for any one or all of
the asset (categories) housed by the entity
 Of the three approaches to value the enterprise (cost, market, and
income), the multi‐period discounted cash flow (“DCF”) method within
the income approach is most reliable when setting the basis (upper limit)
for the valuation of a corporate brand, since it directly captures the
expected risk‐adjusted economic benefit stream (and its relevant
components) generated by the entire portfolio of assets associated with
this key intangible.

Company XYZ
Business Enterprise Value Model
Multiple Period Discounting Method - Discounted Cash Flow Analysis
Terminal
($000's) 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 Value
Revenues $1,360,000 $1,468,800 $1,571,616 $1,665,913 $1,749,209 $1,819,177 $1,873,752
% Growth 8.0% 7.0% 6.0% 5.0% 4.0% 3.0%
EBIT $108,800 $132,192 $157,162 $166,591 $174,921 $181,918 $187,375
% of Revenue 8.0% 9.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Provision for Income Taxes 40.0% $43,520 $52,877 $62,865 $66,637 $69,968 $72,767 $74,950
Net Income $65,280 $79,315 $94,297 $99,955 $104,953 $109,151 $112,425
Plus: Depreciation & Amortization $13,600 $29,376 $31,432 $33,318 $34,984 $36,384 $37,475
Less: Increase in Working Capital @ 10.0% $4,080 $10,880 $10,282 $9,430 $8,330 $6,997 $5,458
Less: Capital Expenditures $13,600 $29,376 $31,432 $33,318 $34,984 $36,384 $38,599
Net Free Cash Flow $61,200 $68,435 $84,015 $90,525 $96,623 $102,154 $105,843 $109,019
Partial Period Adjustment 0.583 1.000 1.000 1.000 1.000 1.000 1.000 1.000
Net Free Cash Flow (adjusted) $35,700 $68,435 $84,015 $90,525 $96,623 $102,154 $105,843 $109,019
Discount Rate 12.0%
Long-term Growth Rate 3.0%
Valuation Date 5/31/2015
Years to Discount 0.583 1.583 2.583 3.583 4.583 5.583 6.583 6.583
Mid-Year Adjustment 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Adjusted Years to Discount 0.292 1.083 2.083 3.083 4.083 5.083 6.083 6.083
Terminal Value $1,211,318
Sum of the PV Interim Cash Flows $396,612 $34,539 $60,529 $66,347 $63,829 $60,829 $57,420 $53,120
PV of the Terminal Value $607,925
Present Value of Total Invested Capital $1,004,538
Less: Interest-Bearing Debt $0
Unadjusted Estimated Value of Equity $1,004,538
Fair Value of Equity (rounded) $1,000,000

 IA (Including Goodwill) = BEV – (MA + TA)
 Subtracting monetary and tangible asset values from
the BEV establishes the maximum value allocable to
Corporate Brand
 The next step in applying the Residual Contribution
method is to “filter out” all elements included within
the Intangible Asset Group value that are not a
component of, or driven by, the entity’s Corporate
Brand

Intangible Assets (IA)
IAA
IAA(Xb)
TM(b)
GA
IAXA(Xb)
Rx =
[ RMA + RTA +
RIA(XB) +
RB(i) ]
GP
IA = Intangible Asset Value GP = Pure Goodwill Value
IAA = Discretely Identifiable Accounting Intangible Assets RX = Returns on Assets Not Allocated to Any Specific Asset Group
IAA(Xb) = IAA, excluding Brand Value Elements RMA = Return on Monetary Contributory Assets
TM(b) = Trademark Value as Measured for Financial Reporting (Accounting) Purposes RTA = Return on Tangible Contributory Assets
GA = Accounting Goodwill Value RIA = Return on Intangible Contributory Assets
IAXA = Intangible Assets Not Measured for Financial Reporting (Accounting) Purposes RIA(Xb) = Return on Intangible Contributory Assets Other than Corporate Brand
IAXA(Xb) = IAXA, excluding Brand Value Elements RB(i) = Return on Corporate Brand's Intrinsic Component
Location of Corporate Brand Value Elements
Copyright © 2015 Beacon Valuation Group LLC
13

 For a discrete intangible asset to exist from a valuation or economic
perspective, typically it should possess certain attributes. The more
common attributes include that the asset may:
 Be subject to specific identification and recognizable description.
 Be subject to legal existence and protection.
 Be subject to the right of private ownership, and this private ownership may
be legally transferable.
 Include some tangible evidence or manifestation of the existence of the
intangible asset (for example, a contract, a license, or a set of financial
statements).
 Have been created or have come into existence as an identifiable item or as
the result of an identifiable event.

 For a discrete intangible asset to have a quantifiable value in terms of
an economic analysis or appraisal, it should possess certain additional
attributes. Some of the additional attributes include the following:
 It should generate some measurable amount of economic benefit to its
owner; this economic benefit could be in the form of an income increment
or of a cost decrement; this economic benefit is sometimes measured by
comparison to the amount of income otherwise available to the intangible
asset owner (for example, the business) if the subject intangible asset did
not exist.
 It should be able to enhance the value of the other assets with which it is
associated; the other assets may encompass all other business assets
including tangible personal property, tangible real estate, or other
intangible assets.

 Marketing‐related
 Typically assets used in the marketing or promotion of products or services
 Trademarks, domain names, newspaper mastheads, …..
 Customer‐related
 Relating to existing customer relationships
 Customer lists, order backlogs, …..
 Artistic‐related
 Arising from legal rights such as those provided by copyright
 Plays, operas, literary works, musical works, …..
 Contract‐based
 Arising from contractual agreements
 Value‐added reseller channels, OEM agreements, favorable supply agreements, …..
 Technology‐based
 Relate to innovations or technological advances
 Patented or non‐patented technology, IPR&D, databases, trade secrets, …..

$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
95.0%
80.0%
67.9%
58.3%
50.4%
44.1%
38.9% 35.0% 31.5% 28.4% 25.5% 23.0% 20.7% 18.6% 16.7% 15.1% 13.6% 12.2% 11.0% 9.9%
5.0%
20.0%
32.1%
41.7%
49.6%
55.9%
61.1% 65.0% 68.5% 71.6% 74.5% 77.0% 79.3% 81.4% 83.3% 84.9% 86.4% 87.8% 89.0% 90.1%
Existing Customers Future Customers
Discretely Identifiable Intangible
Component of Accounting Goodwill

 Corporate Brand Value is directly manifested through the entity’s Primary
Income Generating Asset(s) (“PIGA”), such as Customer Relationships, and the
revenue and associated cash flows generated by this intangible.
 When customer relationships represent the entity’s primary income generating
asset, the future economic benefit stream associated with a Corporate Brand
can be quantified through (extracted from) a systematic examination of the
value components embedded within the entity’s existing customer
relationships (discretely identifiable accounting intangible) and future
customer relationships (generally a component of accounting goodwill).

 The key is to focus on the corporate brand value components embedded within
(manifested through) the entity’s primary income generating asset – this could
also be the Company’s technology‐based intangibles (existing and future
technology) as opposed to customer‐related intangibles.
 The example we will use assumes that customer relationships (existing and
future) are the entity’s primary income generating asset, representing 100% of
the Company’s future revenue/income stream.
 To capture the entire future economic benefit stream associated with a
Corporate Brand, we must value both existing customer relationships (limited
economic life ‐ IAA) and future customer relationships (indefinite economic
life assuming a going concern business ‐ IAXA)

 Represents a variation of the discounted cash flow model.
 The excess earnings method was first used in the 1920's to estimate the value of
intangibles lost when liquor manufacturers were shut down by Prohibition.
 Earnings‐based valuation model attributes:
 Projection of earnings typically spans over a finite life (economic life of
technology).
 A return on contributory assets is subtracted from net income (unlike in
traditional DCF‐based models).
 The amount in excess of net income is the basis of the asset value.
 The earnings stream can therefore be broken down into two components: 1)
Normal return on tangible and intangible assets; and 2) an “excess” amount.
 By separating the valuation problem into two parts, EEM focuses attention on
the factors that create value for a firm.
 Most appropriate for primary income generating or enabling intangible assets
(such as customer relationships).

Company XYZ
Valuation of Existing Customer Relationships - IAA
Multi-Period Excess Earnings Method
($000's) 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2034
year 1 2 3 4 20
Total Customer Revenue (Existing & Future) $1,360,000 $1,468,800 $1,571,616 $1,665,913 $2,751,668
Revenue Growth 8.0% 7.0% 6.0% 3.0%
Existing Customer Relationship Revenue $1,292,000 $1,174,428 $1,067,555 $970,408 $272,071
EBIT Margin 8.0% 9.0% 10.0% 10.0% 10.0%
Add: Sales & Marketing Expense on New Accounts 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Adjusted EBIT Margin 9.0% 10.0% 11.0% 11.0% 11.0%
EBIT $116,280 $117,443 $117,431 $106,745 $29,928
Less: Return on Trade Names @ 0.00% $0 $0 $0 $0 $0
Pretax Income $116,280 $117,443 $117,431 $106,745 $29,928
Provision for Income Taxes 40.0% $46,512 $46,977 $46,972 $42,698 $11,971
Net Income $69,768 $70,466 $70,459 $64,047 $17,957
Less: Return on Working Capital $6,460 $5,872 $5,338 $4,852 $1,360
Less: Return on Fixed Assets $5,362 $4,874 $4,430 $4,027 $1,129
Less: Return on Assembled Workforce $6,202 $5,637 $5,124 $4,658 $1,306
Total Return on Contributory Assets $18,023 $16,383 $14,892 $13,537 $3,795
CAC as a % of Existing Customer Revenue 1.40% 1.40% 1.40% 1.40% 1.40%
Cash Flow Attributable to the Customer Relationships $51,745 $54,082 $55,566 $50,510 $14,161
Partial Period Adjustment 0.583 1.000 1.000 1.000 1.000
Cash Flow Attributable to Customer Relationships $30,184 $54,082 $55,566 $50,510 $14,161
Discount Rate 15.0%
Years to Discount 0.583 1.583 2.583 3.583 19.583
Mid-Year Adjustment 0.5 0.5 0.5 0.5 0.5
Adjusted Years to Discount 0.292 1.083 2.083 3.083 19.083
Present Value of Cash Flows $28,979 $46,484 $41,530 $32,827 $984
Sum of PV Cash Flows $275,789
FMV of Existing Customer Relationships (rounded) $280,000

 Intangibles and Intangible Elements Included in Accounting Goodwill:
 Assembled Workforce
 Future Customers
 Future Technology‐based Intangibles
 Future Patents
 Next Generation Technology
 Know‐how
 Internal Technology
 Future Strategic Contractual Intangibles or Non‐Contractual Relationships
 Other Future Intangibles
 Marketing‐based that are Unrelated to the Company’s Corporate Brand
 Future Non‐compete Agreements
 Artistic and Other Less Likely Intangible Assets

 Other Intangible Elements Included in Accounting Goodwill:
 Returns on Assets Not Allocated to Any Specific Asset Group (RX)
 Returns on Monetary Contributory Assets (RMA)
 Returns on Tangible Contributory Assets (RTA)
 Returns on Intangible Contributory Assets (RIA)
 Returns on Intangible Contributory Assets Other than Corporate Brand (RIA(Xb))
 Returns on Corporate Brand's Intrinsic Component (RB(i))
 Portion of Company’s Going Concern Value Outside of the Economic Life of
Intangibles Separately Valued
 If a combination of the mutually exclusive cash flows of the primary income generating
assets of the business enterprise already fully captures the entire economic benefit stream to
be generated by the entity into perpetuity, then it can be assumed that all of the going
concern value of the business is already captured within the value of those primary assets.
 Valuing both existing customer relationships (assuming a finite life) and future customers
(assuming indefinite/infinite life), representing the residual from the overall business after
deduction for existing customers, fully allocates the going concern value of the business
enterprise to these two assets. (This of course assumes that 100% of the business is driven by the
Company’s customers.)

Company XYZ
Valuation of Future Customer Relationships - IAXA
($000's) 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2034
year 1 2 3 4 20
Revenue Growth 8.0% 7.0% 6.0% 3.0%
Existing Customer Relationships Revenue $1,292,000 $1,174,428 $1,067,555 $970,408 $272,071
Percent of Total 95.0% 80.0% 67.9% 58.3% 9.9%
Future Customer Relationships Revenue $68,000 $294,372 $504,061 $695,505 $2,479,597
Percent of Total 5.0% 20.0% 32.1% 41.7% 90.1%
EBIT Margin [3] 8.0% 9.0% 10.0% 10.0% 10.0%
Add: Sales & Marketing Expense on Existing Accounts 0.50% 0.5% 0.5% 0.5% 0.5% 0.5%
EBIT $5,780 $27,965 $52,926 $73,028 $260,358
Less: Return on Trade Names @ 0.00% $0 $0 $0 $0 $0
Pretax Income $5,780 $27,965 $52,926 $73,028 $260,358
Net Income $3,468 $16,779 $31,756 $43,817 $156,215
Less: Return on Working Capital $340 $1,472 $2,520 $3,478 $12,398
Less: Return on Fixed Assets $282 $1,222 $2,092 $2,886 $10,290
Less: Return on Assembled Workforce $326 $1,413 $2,419 $3,338 $11,902
Total Return on Contributory Assets $949 $4,106 $7,032 $9,702 $34,590
CAC as a % of Future Customer Revenue 1.40% 1.40% 1.40% 1.40% 1.40%
Discount Rate [6] 17.0%
Present Value of Cash Flows $1,404 $10,691 $17,827 $21,023 $6,079
FMV of Future Customer Relationships (rounded) $280,000

 Goodwill is the favor or prestige that a business has acquired beyond
the mere value of what it sells.
 Goodwill amount represents the premium that a hypothetical buyer
would be willing to pay for a company, in excess of the total value of its
underlying monetary, intangible, and identifiable intangible assets.
 The fact that a hypothetical buyer would be willing to pay this
premium suggests that the company has developed an identifiable
corporate brand, and hence, goodwill with its stakeholders.
 In essence, Pure Goodwill ‐ pure in a sense of not including any other
accounting or non‐accounting intangible asset value ‐ is a fundamental
component of Corporate Brand.

Fair Value % of BEV
BEV $1,000,000 100.0%
Less: Working Capital $70,000 7.0%
Less: Return on NWC (Existing Customers) $30,493 3.0%
Less: Return on NWC (Future Customers) $28,675 2.9%
Less: Fixed Assets $30,000 3.0%
Less: Return on NFA (Existing Customers) $25,309 2.5%
Less: Return on NFA (Future Customers) $23,801 2.4%
Less: Existing Customer Relationships $280,000 28.0%
Less: Future Customer Relationships $280,000 28.0%
Less: Trade Names - RFR Method (Excluded) $0 0.0%
Less: Assembled Workforce ("AWF") $55,000 5.5%
Less: Return on AWF (Existing Customers) $29,273 2.9%
Less: Return on AWF (Future Customers) $27,528 2.8%
Less: Return on Brand (Existing Customers) $0 0.0%
Less: Return on Brand (Future Customers) $0 0.0%
Equals: GP (Intrinsic Component of Corporate Brand) $119,921 12.0%
Pure Goodwill = BEV - All Intangibles (IAA + IAXA) - Unallocated Returns on Assets

Company XYZ
Trademark / Trade Name Portfolio Valuation
Calculation of Implied Royalty Rate for Intrinsic Component of Corporate Brand
Relief from Royalty Method
($000's) Forecasted period Terminal
2015 2016 2017 2018 2019 2020 2021 Year
Calculation of Royalty Savings:
Total Revenues $1,360,000 $1,468,800 $1,571,616 $1,665,913 $1,749,209 $1,819,177 $1,873,752
Iterate
Royalty Rate 1.10% 1.10% 1.10% 1.10% 1.10% 1.10% 1.10%
Royalty Savings $14,960 $16,157 $17,288 $18,325 $19,241 $20,011 $20,611
Provision for Income Taxes $5,984 $6,463 $6,915 $7,330 $7,696 $8,004 $8,244
Net Royalty Savings $8,976 $9,694 $10,373 $10,995 $11,545 $12,007 $12,367 $12,614
Partial Period Adjustment 0.583 1.000 1.000 1.000 1.000 1.000 1.000 1.000
Net Royalty Savings (adjusted) $5,236 $9,694 $10,373 $10,995 $11,545 $12,007 $12,367 $12,614
Capitalized Value for Residual Year (CVRY) $140,155
Discount Rate 12.0%
Years to Discount 0.583 1.583 2.583 3.583 4.583 5.583 6.583 6.583
Mid-Year Adjustment 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Adjusted Years to Discount 0.292 1.083 2.083 3.083 4.083 5.083 6.083 6.083
Present Value of Net Royalty Savings $5,066 $8,574 $8,191 $7,752 $7,268 $6,749 $6,206 $70,340
Present Value of Net Royalty Savings $49,807
Present Value of CVRY $70,340
After Tax Value $120,147
Solve for:
Value of Brand Component (rounded) $120,000 119,921

Company XYZ
Valuation of Existing Customer Relationships - IAA
($000's) 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2034
year 1 2 3 4 20
Revenue Growth 8.0% 7.0% 6.0% 3.0%
Existing Customer Relationship Revenue $1,292,000 $1,174,428 $1,067,555 $970,408 $272,071
EBIT Margin 8.0% 9.0% 10.0% 10.0% 10.0%
Add: Sales & Marketing Expense on New Accounts 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
EBIT $116,280 $117,443 $117,431 $106,745 $29,928
Less: Return on Brand Component @ 1.10% $14,212 $12,919 $11,743 $10,674 $2,993
Pretax Income $102,068 $104,524 $105,688 $96,070 $26,935
Net Income $61,241 $62,714 $63,413 $57,642 $16,161
Less: Return on Working Capital $6,460 $5,872 $5,338 $4,852 $1,360
Less: Return on Fixed Assets $5,362 $4,874 $4,430 $4,027 $1,129
Less: Return on Assembled Workforce $6,202 $5,637 $5,124 $4,658 $1,306
Total Return on Contributory Assets $18,023 $16,383 $14,892 $13,537 $3,795
CAC as a % of Existing Customer Revenue 1.40% 1.40% 1.40% 1.40% 1.40%
Discount Rate 15.0%
Present Value of Cash Flows $24,203 $39,822 $36,264 $28,664 $859
FMV of Existing Customer Relationships (rounded) $240,000

Company XYZ
Valuation of Future Customer Relationships - IAXA
($000's) 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2034
year 1 2 3 4 20
Revenue Growth 8.0% 7.0% 6.0% 3.0%
Existing Customer Relationships Revenue $1,292,000 $1,174,428 $1,067,555 $970,408 $272,071
Percent of Total 95.0% 80.0% 67.9% 58.3% 9.9%
Future Customer Relationships Revenue $68,000 $294,372 $504,061 $695,505 $2,479,597
Percent of Total 5.0% 20.0% 32.1% 41.7% 90.1%
EBIT Margin [3] 8.0% 9.0% 10.0% 10.0% 10.0%
Add: Sales & Marketing Expense on Existing Accounts 0.50% 0.5% 0.5% 0.5% 0.5% 0.5%
EBIT $5,780 $27,965 $52,926 $73,028 $260,358
Less: Return on Brand Component @ 1.10% $748 $3,238 $5,545 $7,651 $27,276
Pretax Income $5,032 $24,727 $47,382 $65,378 $233,082
Net Income $3,019 $14,836 $28,429 $39,227 $139,849
Less: Return on Working Capital $340 $1,472 $2,520 $3,478 $12,398
Less: Return on Fixed Assets $282 $1,222 $2,092 $2,886 $10,290
Less: Return on Assembled Workforce $326 $1,413 $2,419 $3,338 $11,902
Total Return on Contributory Assets $949 $4,106 $7,032 $9,702 $34,590
CAC as a % of Future Customer Revenue 1.40% 1.40% 1.40% 1.40% 1.40%
Discount Rate [6] 17.0%
Present Value of Cash Flows $1,154 $9,052 $15,428 $18,195 $5,261
FMV of Future Customer Relationships (rounded) $240,000

Fair Value % of BEV
BEV $1,000,000 100.0%
Less: Working Capital $70,000 7.0%
Less: Return on NWC (Existing Customers) $30,493 3.0%
Less: Return on NWC (Future Customers) $28,675 2.9%
Less: Fixed Assets $30,000 3.0%
Less: Return on NFA (Existing Customers) $25,309 2.5%
Less: Return on NFA (Future Customers) $23,801 2.4%
Less: Existing Customer Relationships $240,000 24.0%
Less: Future Customer Relationships $240,000 24.0%
Less: Trade Names - RFR Method (Excluded) $0 0.0%
Less: Assembled Workforce ("AWF") $55,000 5.5%
Less: Return on AWF (Existing Customers) $29,273 2.9%
Less: Return on AWF (Future Customers) $27,528 2.8%
Less: Return on Brand (Existing Customers) $67,084 6.7%
Less: Return on Brand (Future Customers) $63,086 6.3%
Equals: GP (Intrinsic Component of Corporate Brand) $69,751 7.0%
Pure Goodwill = BEV - All Intangibles (IAA + IAXA) - Unallocated Returns on Assets

Intangible Assets (IA)
IAA
IAA(Xb)
TM(b)
GA
IAXA(Xb)
Rx =
[ RMA + RTA +
RIA(XB) +
RB(i) ]
GP
IA = Intangible Asset Value GP = Pure Goodwill Value
IAA = Discretely Identifiable Accounting Intangible Assets RX = Returns on Assets Not Allocated to Any Specific Asset Group
IAA(Xb) = IAA, excluding Brand Value Elements RMA = Return on Monetary Contributory Assets
TM(b) = Trademark Value as Measured for Financial Reporting (Accounting) Purposes RTA = Return on Tangible Contributory Assets
GA = Accounting Goodwill Value RIA = Return on Intangible Contributory Assets
IAXA = Intangible Assets Not Measured for Financial Reporting (Accounting) Purposes RIA(Xb) = Return on Intangible Contributory Assets Other than Corporate Brand
IAXA(Xb) = IAXA, excluding Brand Value Elements RB(i) = Return on Corporate Brand's Intrinsic Component
Location of Corporate Brand Value Elements
TM(b)
Copyright © 2015 Beacon Valuation Group LLC
31

B = GP + RB
($000's)
Intrinsic Component of Corporate Brand (GP) $69,751
Add: Returns on Corporate Brand from Primary Intangibles (RB)
Existing Customers $67,084
Future Customers $63,086
Other Intangibles $0
$199,921
Equals: Corporate Brand Value $200,000

Business Enterprise
Valuation
Asset Isolation
(Excluding Brand)
Non‐Accounting
Intangibles
(Excluding Brand)
Pure Goodwill
Residual and
Implied Royalty
on Brand
Revaluation of Primary
Intangibles with CAC to
Brand
B = GP + RB
Residual
Contribution
Method

René Hlousek, ASA-BV/IA, MRICS
President and Managing Director
Beacon Valuation Group LLC
E-mail: rh@beaconval.com
Asia-Pacific (Guam) Office
Phone: +1 671-653-5757
Fax: 671-653-5758
P.O. Box 7930
Tamuning, GU 96931-7930
San Francisco (U.S.) Office
Phone: +1 415-357-1227
Fax: 415-357-1701
350 Bay Street, Suite 100-366
San Francisco, CA 94133

Corporate Brand Valuation: Residual Contribution Method

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