Intangible Assets
What are intangible assets?
Intangible assets represent non-physical assets of a company that hold value but lack physical presence. These assets are often categorized as intellectual property, including patents, trademarks, and copyrights, and encompass non-tangible elements like customer lists, business contracts, and supplier relationships. They play a pivotal role in providing a competitive advantage and boosting profits, yet their valuation and monitoring can be challenging, affecting potential monetization.
How to evaluate the worth of an intangible asset
Intangible assets are identifiable, non-monetary assets without physical substance, comprising trademarks, copyrights, patents, and goodwill. Valuing these assets is complex due to the absence of a direct market. To compute the value of an intangible asset, several methods exist, such as the income approach, market approach, or cost approach. The income approach projects future economic benefits generated by the asset and discounts them to their present value. The market approach assesses recent transactions of similar intangible assets to determine fair value. Meanwhile, the cost approach determines the cost of recreating the intangible asset.
Examples of intangible assets
Intangible assets are non-physical assets encompassing patents, copyrights, trademarks, and goodwill. These assets are recorded separately from physical assets on a company's balance sheet, and their value often materializes upon sale or licensing to another entity. Notable examples include:
- Intellectual property like patents, copyrights, and trademarks
- Goodwill, representing a company's brand and reputation
- Customer relationships
- Business processes and protocols
- Software licenses
