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Calculated Intangible Value (CIV): Definition and Examples

By

澳洲幸运5开奖号码历史查询:Will Kenton

Updated July 05, 2023

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JeFreda R. Brown

Fact checked by

Vikki Velasquez

What Is Calculated Intangible Value (CIV)?

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, 澳洲幸运5开奖号码历史查询:owners looking to sell th💫eir company may hire a business appraiser💯 to specifically value the company's intangible assets.

Key Takeaways

A calculated intangible value (CIV) is a method of valuing a company's intangible assets, which are assets that are not physical in nature.
Examples of intangible assets include brand recognition, goodwill, patents, trademarks, copyrights, proprietary technology, and customer lists.
The CIV takes into consideration factors such as a company's pretax earnings, a company's average return on tangible assets, and the industry's average return on tangible assets.

Understanding Calculated Intangible Value (CIV)

Frequently, a company's intangible assets are valued by subtracting a firm's 澳洲幸运5开奖号码历史查询:book value from its 澳洲幸运5开奖号码历史查询:market value. However, opponents of this method argꦏue that because market value constantly changesღ, 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.

Determining CIV

Finding a company's CIV involves seven steps:

Calculate the average 澳洲幸运5开奖号码历史查询:pretax earnings for the past three years.
Calculate the average year-end 澳洲幸运5开奖号码历史查询:tangible assets for the past three years.
Calculate the company's 澳洲幸运5开奖号码历史查询:return on assets (ROA).
Calculate the industry average ROA for the same three-year period as in Step 2.
Calculate excess ROA by multiplying the industry average ROA by the average tangible assets calculated in Step 2. Subtract the excess return from the pretax earnings from Step 1.
Calculate the three-year average 澳洲幸运5开奖号码历史查询:corporate tax rate and multiply it by the excess return. Deduct the result from the excess return.
Calculate the 澳洲幸运5开奖号码历史查询:net present value (NPV) of the after-tax excess return. Use the company's 澳洲幸运5开奖号码历史查询:cost of capital as a discount rate.

What Is Goodwill As an Assest?

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 representܫs the value that can give the acquiring company a c♔ompetitive advantage.

Why Is CIV Important?

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.

What Are Some Examples of Tangible Assets?

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.

The Bottom Line

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 澳洲幸运5开奖号码历史查询:brand recognition—which can be seen in the company's product design𝕴, logos, packaging, and slogans—all of which impact Apple's ability to generate profits and sales.

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