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.

China’s Treatment of Data Assets

By David Huer | June 2025

Recognizing Data as Inventory: A Step Toward Accounting Clarity

(2022) Xiong, F., Xie, M., Zhao, L., Li, C., & Fan, X. (2022). Recognition and Evaluation of Dats as Intangible Assets. SAGE Open, 12(2): https://doi.org/10.1177/21582440221094600

A Longstanding Gap in Financial Reporting:

As covered previously in this blog, internally generated data is routinely used to drive advertising, pricing, and business strategy—yet is often absent from balance sheets. Under IFRS and GAAP intangible assets must be identifiable, controlled, and expected to generate future economic benefits. Despite many datasets meeting these criteria, recognition has lagged due to challenges in valuation and disclosure practices.

In this 2022 article, Feng Xiong and colleagues proposed that enterprise data should be explicitly recognized under China’s accounting standards—similar to the treatment already permitted by IFRS and GAAP. Their analysis provides a structured approach to valuation and calls for formal inclusion of qualifying data assets in financial reporting.

Valuation Approaches:

The authors reviewed three standard methods for valuing data assets:

• Cost Approach: Captures direct and indirect costs to collect, clean, and maintain data. While straightforward, it may undervalue reusable or high-impact datasets.

• Net Present Value (NPV): Estimates the discounted future benefits of data-driven activities. This is particularly relevant for companies with subscription models or recurring data-based services.

• Market Approach: Derives value from data marketplace transactions or similar third-party pricing. This method is still developing, especially for proprietary or non-tradable datasets.

Case Example: Hithink RoyalFlush

Hithink RoyalFlush, a Chinese fintech firm, generates substantial revenue from data-driven services, including telecom tools, advertising, and software subscriptions. Yet its financial statements did not list data assets. Given the proprietary nature of its data, the market approach is unsuitable. The cost method underrepresents value due to repeated reuse. The authors proposed applying the NPV-based approach to more accurately reflect the strategic role and long-term value of these assets.

Implications for Financial and Strategic Reporting:

Recognizing internally generated data as intangible assets can improve reporting accuracy and better reflect a company’s economic reality. Benefits include:

• Closer alignment between business value and reported assets
• Improved transparency for investors and analysts
• More robust valuation in mergers and acquisitions
• Greater support for monetization and licensing strategies

However, recognition must be grounded in reliable valuation and meet existing accounting criteria, especially regarding measurability and probability of future benefit.

Key Takeaways

The authors argue that recognizing data as intangible assets improves the accuracy and usefulness of financial reporting, particularly for firms whose business models rely heavily on data analytics. They emphasize that existing accounting principles already support this recognition, and propose three valuation methods—cost, NPV, and market-based—each suited to different business contexts. 

They call for further research to refine when and how such recognition should apply, and they caution that internal auditors will play a critical role in ensuring firms apply these principles ethically and within legal boundaries. Ultimately, their work advocates for accounting systems that reflect the strategic importance and monetizable value of data in the modern digital economy.

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Postscript: Regulatory Developments

In 2023, China implemented new accounting rules to allow enterprise data to be included on the balance sheet (1). The change is designed to help companies more accurately reflect the financial value of their data assets—particularly in the context of sales or licensing.

The new approach defines data as an intangible asset that is organized into two categories:

• “Intangible Assets”: Data used internally for strategic or operational purposes

• “Inventory”: Data packaged for sale (e.g., APIs, datasets, analytic products): Note: This classification is an accounting mechanism to support reporting and valuation. It allows companies to recognize saleable data assets as “inventory” for the purposes of revenue tracking, cost-of-goods-sold (COGS), and gross margin accounting. 

• Data's fundamental nature ("intangibility") does not change. 

(1) https://www.forbes.com/councils/forbestechcouncil/2024/04/18/china-treats-data-as-an-asset-heres-why-your-business-should-too/

2025 Q2 Pivot Note Update

The future looks bright.

Hello everyone, our pivot continues; and now forecast re-starting blog posts in May-June. This will be a review of a Chinese data valuation paper: https://journals.sagepub.com/doi/full/10.1177/21582440221094600

These two "Intangible assets" papers are also in pipeline: 

• Overpage: https://www.wipo.int/sme/en/events/expert-consultative-group-on-valuation.html

• https://www.wipo.int/edocs/mdocs/mdocs/en/wipo_hl_ip_ge_23/wipo_hl_ip_ge_23_paper1.pdf

• https://www.wipo.int/edocs/mdocs/mdocs/en/wipo_hl_ip_ge_23/wipo_hl_ip_ge_23_paper2.pdf

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