Valuing Corporate Intangibles

By David Huer | June 2025

(2023) Nicolas Crouzet, Yueran Ma, FINANCING AND VALUATION OF INTANGIBLE ASSETS, Nicolas Crouzet, Yueran Ma, Kellogg School of Management, Northwestern University, [Link] (Accessed Q2-2025). Expert Consultative Group on Valuation of Intangible Assets, GENEVA, OCTOBER 12, 2023

Summary

The paper discusses methods to value intangible assets; and opens by emphasizing the growing utility of intangible assets modern companies. These assets are increasingly vital but present major challenges for financing and valuation. 

Crouzet and Ma note the key distinction between separable intangibles (e.g., patents, software, brands) that can be sold or pledged independently, and nonseparable intangibles (e.g., know-how) that are deeply embedded in the firm and which is  typically financed through equity or enterprise-level debt. 

Structural bottlenecks limit financing use cases options for intangibles: unclear property rights, thin markets, and limited accounting transparency. For separable assets, valuation is hindered by the scarcity of secondary market transactions. The context of  the valuation is also to be considered: 

(1) Economists: "...define intangible assets as non-physical, firm-controlled resources resulting from past expenditures that are expected to yield future economic benefits ( proprietary knowledge, software, customer relationships, and internal databases. Crucially, this definition excludes financial assets and public goods like open-source software, as these do not stem from exclusive firm investment."

(2) Financial Accountants: "...require identifiability: assets must be separable or arise from contractual/legal rights to be recognized. As a result, only acquired intangibles are typically recorded on balance sheets, while internally developed assets are often omitted." 

The authors continue by delving into the role of uncertainty and discount rates in valuation.

The authors argue that in this age, it is prudent to capture "the true scope and value of firm-created intangible capital." One of the ways is to ensure the presence of "Robust institutional support—especially bankruptcy protections and accurate reporting—(which are) is essential for unlocking capital derived from intangible assets.  

This is challenging, so  income-derived valuation methods are often used. Methods are used on a case-by-case basis. Moreover, the authors "caution against inflating discount rates based on perceived risk; instead, systematic risks should influence discounting, while idiosyncratic risks, such as obsolescence or legal uncertainty, are better handled by adjusting cash flow projections. Income-derived methods include: With-and-without, Relief-from-royalty, Excess earnings, and Greenfield method. These are explained in the article.