The Financial Valuation of Intangibles: A Method Grounded on an IC-Based Taxonomy

Abstract

This chapter proposes a method for the financial valuation of intangibles based on a specific taxonomy that distinguishes between intangible assets and core competencies, while classifying the latter into (tangible or intangible) asset-driven core competencies and non-asset driven core competencies. These are in turn classified according to the intellectual capital categories they drive. The method proposed is based on the assumption that the value of a company’s intangibles is to be found essentially in its core competencies. Financial valuation models based largely on the cash flow generated by the company and on real options valuation are proposed as a means of identifying and quantifying a company’s intangibles in monetary terms, taking the earnings they are capable of generating into account. This method is suitable for valuing the intangibles of large companies and smaller businesses where large databases are not available.