Dernière modification le 09/08/2022 à 23:42 par Kate Griss

by Erwan COATNOAN DE KERDU

Intangible Capital Value

Our core business: intangible capital valuation

Valuation Glossary

This glossary is intended to be useful, but not authoritative or
authoritative or prescriptive.

Asset Value Approach

Asset Value Approach – a general way of obtaining an estimate of the value of a business using one or more methods based on a summation of the value of the net assets of the liabilities, where each of the assets and liabilities has been valued using the Market Approach, the Income Approach, or the Cost Approach.

Attrition

Attrition – the annual percentage rate of loss of an existing asset such as a customer relationship or an intangible asset.

Assessment

Assessment – also known as Evaluation.

Actual cash flows

Actual cash flows – cash flows that exclude the effects of inflation over time.

Adjusted net asset value method

Adjusted net asset value method – a method of the asset value approach in which a company’s assets and liabilities are adjusted to market value or another appropriate standard of value. Also referred to as the Adjusted Book Value Method or the Asset Accumulation Method.

Accumulation model

Accumulation model – a model in which the expected return on a security is measured by a risk-free rate plus premiums for systematic risk and specific risk .

Adjusted present value (APV)

Adjusted present value (APV) – a technique generally used to estimate the value of a leveraged firm as the sum of the value of an unleveraged firm and the value of the tax benefits associated with debt financing.

Basis of value

Basis of value – Also called Standard of value.

Beta coefficient

Beta coefficient – a measure of the relative risk (or sensitivity) of an individual security to the risk of a market portfolio. See also Capital Asset Pricing Model, Systematic Risk, Specific Risk, Leveraged Beta and Unleveraged Beta.

Binomial tree model

Binomial tree model – a model typically used to estimate the value of an asset or investment that uses a binomial tree to show the different paths that the price of an underlying asset, such as a security, might take over its lifetime.

Blockage discount

blockage discount – an amount or percentage deducted from the market price of a listed security to reflect the decrease in value per security of a block of shares that is unlikely to be sold within a reasonable time given normal trading volumes.

Business-specific risk

Business-specific risk – risk that is unique to a specific investment in a business, which exceeds the equity risk premium, size risk, or country risk

Capital structure

Capital structure – the composition of a company’s invested capital, including debt and debt-like equity, equity and hybrid securities. See also simple capital structure and complex capital structure.

Capitalization of earnings method

Capitalization of earnings method – a method under the income approach in which expected economic income for a given representative period is converted to a value by dividing it by a capitalization rate. Also called the Capitalization Method or Direct Capitalization Method.

Capitalization rate

Capitalization rate – a divisor used to convert expected economic income from a given normalized period into a value. The capitalization rate is often calculated as the discount rate minus a long-term growth rate.

Cash flow

Cash flow – cash inflows or outflows generated over a period by an asset, business, or investment; often supplemented by a qualifier in the given valuation context.

Company-specific risk

company-specific risk. See also accumulation model.

Comparable public company method

Comparable public company method – a method that is part of the market approach by which the value of a business is estimated by applying multiples derived from the market prices of securities of publicly traded companies operating in the same or similar industries as the subject business.

Comparable transaction method

Comparable transaction method – a method within the market approach by which the value of a business is estimated by applying multiples derived from one or more transactions of controlling interests in businesses in the same or similar industries as the subject business. Also known as the comparable mergers and acquisitions method.

A method used to estimate the value of certain intangible assets based on the discounted cash flows of a hypothetical start-up business. The fresh start method assumes that the asset in question is the only asset of the business at the valuation date and that investments are made during the start-up period to purchase, build, or lease the other assets required to assemble the business.

Complex capital structure

Complex capital structure – a capital structure that includes debt and equity securities with different economic and control rights. Compare to simple capital structure.

Contributing asset charge

Contributing asset charge – an economic charge for contributing assets applied in the multi-period excess earnings method. See also Contributory assets, Excess earnings method and multi-period excess earnings method.

Contributory assets

Contributory assets – those assets that are used in conjunction with the subject intangible asset in realizing the prospective cash flows associated with the intangible asset being valued.

Control

Control – a level of ownership with sufficient rights to direct the management, policies, and disposition of a business.

Controlling interest

controlling interest – an interest in a business that conveys the economic benefits of control to the holder or holders of that interest.

Cost approach

Cost approach – a general way of estimating the value of an asset, investment or business using one or more methods that reflect the economic principle that a buyer will generally pay no more for an asset than the cost to obtain another asset of equal utility, whether by purchase or construction. The approach considers the current cost of replacement or reconstitution, physical deterioration, and all other relevant forms of obsolescence.

Cost of capital

Cost of capital – the expected rate of return that the market requires to attract funds to a particular investment, considering the risk associated with the investment. See also weighted average cost of capital.

Cost savings method

Cost savings method – a form of the income approach in which the value of an intangible asset is measured based on an expected future stream of benefits in terms of future expenses that are avoided (or reduced) by owning the asset.

Discount for lack of control

Discount for lack of control – the amount or percentage deducted from the proportionate value of 100% of an entity’s equity value (when calculated on a controlling interest basis) to reflect the absence of some or all the economic benefits associated with control

Discount for lack of voting rights

Discount for lack of voting rights – the amount or percentage applied to the per share value of a voting share to reflect the absence of voting rights. [discount for lack of voting rights]
discount for lack of liquidity – the amount or percentage applied to the value of a shareholding to reflect the relative lack of liquidity.

Discount for lack of marketability

Discount for lack of marketability – the amount or percentage applied to the value of a holding to reflect the relative lack of marketability.

Discount rate

Discount rate – a rate of return used to convert economic income into present value.

Discounted cash flow method

Discounted cash flow method – a form of the discounted economic income method based on cash flow.

Discounted economic income method

Discounted economic income method – a method of the income approach in which the present value of expected economic income is calculated using a discount rate.

Distributor method

Distributor method – a variation of the multi-period excess earnings method that uses market-based distributor data and other market inputs to value customer relationship intangibles. Sometimes referred to as the capitalized excess earnings method.

Economic income

Economic income – cash inflows or outflows from the operations of a business

It is the basis for the valuation of the assets acquired and the liabilities assumed by the target company, using various methods

Economic obsolescence

Economic obsolescence – a form of depreciation or loss of value or usefulness of an asset caused by factors external to the asset, particularly factors related to changes in demand for the products or services produced by the asset.

Effective date

Effective date – see also Evaluation date, Measurement date or Value date.

End-of-period discounting

End-of-period discounting – a convention used when discounting economic income to present value that reflects the income generated at the end of a given period.

ESG

ESG – environmental, social and governance factors that impact a company or asset and its financial performance and operations .

Equity instrument

Equity instrument – a contract that creates a residual interest in the assets of a company after deducting its liabilities.

Equity risk premium

Equity risk premium – the additional return that investors expect to receive from a public equity investment compared to a risk-free security. It is generally calculated as the difference between the expected rate of return on the overall market and the return on a risk-free instrument.

Equity value

Equity value – the value of a company to all its equity holders. Equity value is generally calculated as the market value of invested capital less the market value of debt and debt-like equity securities, hybrid securities, and other non-equity claims, if any.

Excess earnings

Excess earnings – the amount of expected cash flows that exceeds the economic burden imposed for the use of the contributing assets used to generate those cash flows.

Excess earnings method

Excess earnings method – a method of estimating the value of a business, determined as the sum of (i) the value of the selected tangible asset base and (ii) the value of all intangible assets (including goodwill) obtained by capitalizing excess earnings. Sometimes referred to as the capitalized excess earnings method.

A method of estimating the value of the principal income-producing intangible asset within an asset group by calculating the cash flows attributable to that asset net of expenses related to the contributing assets. See also Excess earnings method.

A method that is part of the market approach that uses previous transactions in the business as an indicator of value. Also referred to as the subject business transaction method or the recent transaction method.

Exchange value

Exchange value – the value of an asset or liability if it is sold on the open market.

Expected cash flow

Expected cash flow – the probability-weighted average of different possible scenarios for the cash flows of a subject company.

Expected present value technique

Expected present value technique – a technique for calculating present value that uses the expected cash flows of an asset, business or investment. [expected present value technique]
debt-like equity securities – a financial obligation that is similar to a debt security or other claim.

A financial obligation that is like a debt instrument or other non-equity claim arising from the execution of a short- or long-term contract.

Extrapolation method

Extrapolation method – a method included in the market approach, where the total equity value (or the value of a specific class of equity) of a company is determined from a recent transaction of the company’s securities.

Fair value

Fair value – a standard of value for which there are different definitions, depending on the context and purpose. Fair value is typically defined or imposed by a third party (e.g., by law, regulation, contract, or financial reporting regulators). The most used definition for financial reporting purposes is under IFRS and U.S. GAAP, which define fair value as the price that would be received for the sale of an asset or paid for the transfer of a liability in an arm’s length transaction between market participants at the measurement date.

Fair market value

Fair market value – a standard of value considered to represent the price, expressed in cash equivalents, that could be obtained in a transaction in a freely competitive market between a hypothetical willing buyer and a willing seller who are dealing at arm’s length, under no compulsion to act, and are reasonably informed of the relevant facts. See also fair market value.

Firm-specific risk premium

Firm-specific risk premium – an adjustment to the cost of equity to account for the firm’s own risk.

Functional obsolescence

Functional obsolescence – a form of depreciation in which the loss of value or usefulness of an asset is caused by inefficiencies or deficiencies in the asset, relative to a newly developed, more efficient, or less costly asset.

Going concern

Going concern – a business enterprise in continuous operation.

Going concern value

Going concern value – a premise of value that assumes the business is a going concern that is reasonably expected to have future earnings power.

Goodwill

Goodwill – an intangible asset that represents any future economic benefit from a business or group of assets that is not individually identified or separately recognized. Goodwill may arise from name, reputation, customer loyalty, location, products and similar factors that are not separately identified. In the context of a business combination, goodwill is measured as the difference between the aggregate of (i) the value of the consideration transferred (generally at fair value), (ii) the amount of any non-controlling interest, and (iii) in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree, and the net of the acquisition-date amounts of identifiable assets acquired and liabilities assumed.

Hybrid securities

Hybrid securities – a component of a company’s capital structure that cannot be classified purely as debt or equity because it may have characteristics of both (e.g., convertible debt, convertible preferred stock, employee stock options).

Identifiable intangible assets

Identifiable intangible assets – in the context of financial reporting, an intangible asset is identifiable if it meets certain contractual or separability criteria as defined by a relevant standard

Income approach

Income approach – a general way of estimating the value of an asset, business or investment using one or more methods that convert expected economic income into a discounted amount.

Intangible asset

Intangible asset – an asset that lacks physical substance and whose value is derived from economic properties that confer rights or economic income on its owner. See also identifiable intangible asset.

Intellectual property

Intellectual property – a legal concept that refers to creations of the mind that are the result of intellectual or creative effort and for which exclusive or fractional rights are recognized (e.g., trademarks, trade names, trade secrets, patents, copyrights, design rights and proprietary information). Intellectual property rights generally give the owner the right to prohibit others from using the property without authorization.

Internal rate of return

Internal rate of return – the discount rate at which the present value of expected net cash flows equals the original cost of the investment.

Intrinsic Value

Intrinsic Value – the value that an investor considers, based on available facts, to be the “true”, “real”or fundamental value that will become the market value when other investors reach the same conclusion.

Invested capital

Invested capital – the sum of a company’s equity, debt and debt-like equity securities, hybrid securities and other non-equity claims.

Investment risk

Investment risk – the uncertainty of whether the expected economic income will be realized

Investment value

Investment value – a standard of value considered to represent the value of an asset or business to an individual owner or potential owner for individual investment or operational purposes.

Key person discount

Key person discount – an amount or percentage deducted from the value of an active business to reflect the reduction in value resulting from the actual or potential loss of a key person on whom the business is highly dependent.

Leveraged Beta

Leveraged Beta – a measure of beta that reflects a capital structure that includes debt. Also called equity beta.

Liquidity

Liquidity – the ability to convert an asset, business, or investment into cash quickly or easily, without significant cost.

A method that assigns the value of the equity to the various equity securities (or the value of the business to the various debt and equity securities) in a business as if it were to be sold on the valuation date, without considering options similar to equity calls. Compare with Probability Weighted Return Method and Option Pricing Method.

Liquidation value

Liquidation value – the amount, net of relevant costs that would be realized if the business were dissolved.

The amount that would be realized if the business were dissolved and the assets were sold.
Forced liquidation value – a form of liquidation value, at which the asset(s) are assumed to be sold when market exposure does not reach a reasonable period. Compare to orderly liquidation value.

A form of liquidation value at which the asset or assets are assumed to be sold over a reasonable period of market exposure to maximize the expected return.

Market approach

Market approach – a general way of estimating the value of an asset, business, or investment by using one or more valuation methods that compare the subject to other assets, businesses or investments that have been sold or for which price and other information is available.

Market capitalization

Market capitalization – the sum, at market value, of the market capitalization of equity and interest-bearing debt.

Market capitalization of equity

Market capitalization of equity – the aggregate equity value of a listed company, calculated as its market price and the number of equity securities outstanding.

Market value

Market value – a standard of value considered to represent the estimated amount for which an asset or liability would be exchanged on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after appropriate marketing and when each party had acted in a knowledgeable, prudent and unconstrained manner.

Market value of invested capital

Market value of invested capital – the sum, at market value, of a company’s total equity and its debt, debt-like equity securities, hybrid securities and non-equity claims.

Marketability

Marketability – the ability to convert an asset, business or investment into cash quickly or easily, at minimal cost, which reflects the ability and ease of transfer or the commercial attractiveness of that asset. Marketability is affected by, among other things, the particular market in which the asset is intended to be traded and the characteristics of the asset. See also liquidity.

Measurement date

Measurement date – also called Valuation date, Effective date or Value date.

Mid-period discounting

Mid-period discounting – a convention used in the discounted economic income method that reflects the economic income generated at mid-period, approximating the effect of economic income generated evenly throughout the period. Compare to discounting at the end of the period.

Monte Carlo method

Monte Carlo method – a statistical technique that performs random sampling from a probability distribution to produce different possible outcomes that simulate the different sources of uncertainty that affect a company’s future.

Multiple

Multiple – a ratio calculated as the value of a firm or security divided by economic income or a non-financial measure.

Net asset value

Net asset value – the difference between the total assets and total liabilities of an enterprise restated in accordance with a particular standard of value, instead of the book value.

Net book value

Net book value – the difference between the total assets and total liabilities of a company at book value With respect to a particular asset, it is the original capitalized cost less accumulated depreciation, amortization, depletion, provisions or write-downs.

Net cash flow to equity

Net cash flow to equity – free cash flow to be paid to equity holders after financing business operations, paying taxes, making necessary capital expenditures, and servicing debt and debt-like equity securities, hybrid securities and non-equity claims.

Net present value

Net present value – the value, at a given date, of future cash inflows minus cash outflows (including the cost of the initial investment), calculated using a discount rate.

Nominal cash flow

Nominal cash flow – cash flow that includes the effects of inflation. Compare to actual cash flows.

Nominal rate of return

Nominal rate of return – a rate of return that includes the effects of inflation.

Non-controlling interest

Non-controlling interest – an interest that does not have control of the business.

Non-operating assets

Non-operating assets – assets that are not required for the ongoing operations of a business.

Normalizing adjustments

Normalizing adjustments – adjustments made to an enterprise’s financial statements for non-operating assets and non-operating liabilities or for extraordinary, nonrecurring, noneconomic, or other unusual items to eliminate misstatements or facilitate comparisons.

Normalized earnings

Normalized earnings – economic income adjusted for extraordinary, non-recurring, non-economic, or other unusual items to eliminate anomalies and facilitate comparisons.

Physical obsolescence

Physical obsolescence – a form of depreciation in which the loss of value or utility of an asset is attributable to the reduction or expiration of its life due to wear and tear, deterioration, exposure to various elements, physical stresses, and similar factors. See also economic obsolescence and functional obsolescence.

Post Money value

Post Money value – the implied aggregate value of a firm immediately after its last round of financing. Compare to pre-money value.

Portfolio

Portfolio – a collection of various assets, investments, or liabilities.

Portfolio discount

Portfolio discount – an amount or percentage deducted from the value of a business to reflect the fact that it has dissimilar operations or assets in a combination that may not be attractive to a potential buyer. Also called a conglomerate discount.

Pre-Money value

Pre-Money value – the implied aggregate value of a business immediately prior to its final round of financing. Compare to post financing value.

Premise of control

Premise of control – an amount or percentage by which the proportionate value of a controlling interest exceeds the value

The value of a company’s assets and liabilities is determined by the value of the assets and liabilities of the company and the value of the assets and liabilities of the company.

Present value

Present value – the value, at a given date, of expected economic income, calculated using a discount rate. See also net present value.

Price

Price – the monetary or other consideration asked, offered, or paid for an asset, which may be different from its value.

Probability-weighted return method

Probability-weighted return method – a scenario-based technique used to assess the value of an equity security, based on the probability-weighted present value of various discrete future business outcomes

Purchase price allocation

Purchase price allocation – a term commonly used to describe the process of allocating the price paid in a business combination to the acquired assets and assumed liabilities of the target business, using various methods.

Rate of return

Rate of return – an amount, expressed as a percentage of the amount of the investment, of the expected or realized economic income or change in value of an investment.

Required rate of return

Required rate of return – the minimum rate of return that investors will accept before committing money to an investment, given its level of risk.

Replacement cost

Replacement cost – the cost, as of the measurement date, of a new identical asset or of a new asset with equivalent utility to the asset in question.

Replacement cost method

Replacement cost method – a method under the cost approach that estimates the value of an asset by calculating the cost, as of the measurement date, required to recreate the functionality or utility of a similar asset. See also Cost Approach and Replacement

Report date

Report date – the date an evaluation report is issued. Compare to valuation date.

Residual value

Residual value – an estimate of the value of a firm’s economic income at the end of the discrete projection period in a discounted economic income model.

Risk-free rate

Risk-free rate – a rate of return available in the market for an investment perceived to be free of credit risk.

Risk premium

Risk premium – a rate of return added to a prime rate to reflect the additional risk of an asset, business or investment .

Royalty

Royalty – a payment (hypothetical or actual) made for the use of an asset, especially an intangible asset or natural resource.

Royalty method

Royalty method – a method of estimating the value of an intangible asset by reference to the present value of hypothetical royalty payments that are avoided saved through ownership of the asset, as compared to licensing it from a third party.

Salvage value

Salvage value – the value of an asset at the end of its economic life, given the purpose for which it was created. The asset may still have value for another use or for recycling.

Scenario analysis

Scenario analysis – the technique of modeling several possible future economic income scenarios to derive expected value. See also Monte Carlo Method, Option Pricing Method, and Probability Weighted Return Method.

Specific risk

Specific risk – the risk specific to an individual security that can be eliminated by diversification. Also called idiosyncratic risk or diversifiable risk.

Simple capital structure

Simple capital structure – a capital structure that includes a single class of equity and may include debt or debt-like preferred securities.

Standard of value

Standard of value – the definition of value used in a valuation. The standard of value affects the methods, inputs and assumptions used by the business valuation professional.

Standalone value

Standalone value – the value of an asset, business or investment estimated without regard to possible synergies.

Synergies

Synergies – the concept that the performance and value of two assets or businesses combined will be greater than the sum of their separate individual parts, resulting from the expectation of economies of scale or post-acquisition benefits.

Synergistic value

Synergistic value – the expected value derived from a combination of two or more assets or businesses that is greater than the sum of the separate individual parts.

Systematic risk

Systematic risk – the risk common to all risky securities that cannot be eliminated by diversification. Also called market risk and nondiversifiable risk.

Tangible asset

Tangible asset – an asset that has a physical form and whose value is derived from its physical properties or tangible nature. Compare to intangible asset.

Tax amortization benefit

Tax amortization benefit – the present value of the income tax savings resulting from the tax deduction generated by the amortization of an intangible asset.

Tax depreciation benefit

Tax depreciation benefit – the present value of the income tax savings resulting from the tax deduction generated by the depreciation of a tangible asset.

Unlevered beta

Unlevered beta – a measure of beta that reflects a capital structure without debt. Also called asset beta.

Valuation

Valuation – the act or process of developing an opinion or conclusion of value at a valuation date using a premise of value, a standard of value, and one or more valuation approaches. Also referred to as an estimate.

Valuation approach

Valuation approach – a general way of determining value that uses one or more specific valuation methods. See also cost approach, asset value approach, income approach and market approach.

Valuation date

Valuation date – the specific time at which the value conclusion applies. Also referred to as Effective Date, Measurement Date or Value Date. Compare to Report Date.

Valuation method

Valuation method – within a valuation approach, a methodology used to estimate value (e.g., the discounted cash flow method under the income approach).
Option valuation method – a forward-looking technique used to allocate value among different classes of shares with different economic rights, assuming different future outcomes. The option pricing method considers the current equity value and then allocates that value to different classes of shares by considering a continuous distribution of earnings, rather than by focusing on discrete future scenarios.

Valuation model

Valuation model – a tool used by business valuation professionals to estimate the value of an asset, business, or investment, consisting of a series of calculations that require the application of valuation methods and the informed judgment of the business valuation professional.
Capital Asset Pricing Model (CAPM) – a single-factor capital asset pricing model that measures the expected return on any security (or portfolio of securities) as the sum of a risk-free rate plus a risk premium. The risk premium is equal to the systematic risk of the security multiplied by the risk premium associated with holding the overall market portfolio. The CAPM is often modified or extended to include other risk factors, such as size risk, country risk and firm-specific risk.

Value in exchange

Value in exchange – the market value of invested capital, typically adjusted to subtract all or a portion of cash and cash equivalents and other non-operating assets.

Value in use

Value in use – the value of an asset, business or investment in its current or continuing use. Compare to exchange value.

Value premise

Value premise – an assumption about the circumstances that may apply to the valuation in question. See also going concern value and liquidation value.

Waterfall

Waterfall – the contractual allocation of cash flows, usually resulting from a liquidity event to different classes of ownership in a company, reflecting the economic rights of each class.

Weighted average cost of capital (WACC)

Weighted average cost of capital (WACC) – the measure of a firm’s overall cost of capital, where the expected rate of return on each component of capital is weighted at market value according to its relative proportion of the capital structure.

Working capital

Working capital – the amount of current assets minus its current liabilities held in a company for its day-to-day operational needs. Also referred to as net working capital excluding debt when all or a portion of cash and the current portion of interest-bearing debt are excluded.

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