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Calculated intangible value is a method of valuing a company's intangible assets. This calculation attempts to allocate a fixed value to intangible assets that won't change according to the company's market value. An intangible asset is a non-physical asset. Examples of intangible assets include patents, trademarks, copyrights, goodwill, brand recognition, customer lists, and proprietary technology.
Because an intangible asset has no physical form and isn't easily converted to cash, calculating its value can be challenging. However, there are times when calculating the value of intangible assets becomes critical. For example, owners looking to sell their company may hire a business appraiser to specifically value the company's intangible assets.
Frequently, a company's intangible assets are valued by subtracting a firm's book value from its market value. However, opponents of this method argue that because market value constantly changes, the value of intangible assets also changes, making it an inferior measure.
On the other hand, the calculated intangible value takes additional factors into consideration, such as the company's pretax earnings, the company's average return on tangible assets, and the industry's average return on tangible assets.
Finding a company's CIV involves seven steps:
Goodwill is an intangible asset associated with the purchase of one company by another. It accounts for the excess purchase price of the company, and it represents the value that can give the acquiring company a competitive advantage.
Calculated intangible value is important because intangible assets can add value to a company and increase revenue and profitability. They are another form of asset that a business can create or acquire, and therefore they are key to a business's finances.
Tangible assets include inventory (raw materials, goods in process, finished products) and fixed assets (equipment, land, buildings, vehicles, etc.) Like intangible assets, they are recorded on the balance sheet, but they are valued differently.
It's much easier to calculate an accurate value for tangible assets than intangible assets. Tangible assets—such as product inventory, buildings, land, and equipment—are visible and simple to understand. Because intangible assets are more difficult to value, companies may choose to hire a third-party business evaluator or appraiser to perform the intricate task of identifying the company's unique assets and placing a value on them. When a company is for sale, this process becomes more critical as questions regarding asset value can lead to disputes between buyer and seller.
Despite the valuation difficulties posed by intangible assets, these assets can play a huge role in a company's success. Apple Inc. (AAPL), for example, has spent considerable money and time to develop its proprietary technology and brand recognition—which can be seen in the company's product design, logos, packaging, and slogans—all of which impact Apple's ability to generate profits and sales.