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Business valuation

2.4 CIV (Calculated Intangible Value)

Goodwill, brands and other intellectual capital (intangible assets) often have a
significant value.

Indeed often intellectual capital is the main contributor of value to an entity.

However, the asset based methods covered above do not incorporate
this value.

The CIV method

The CIV method compares the total return that the company is generating

against the return that would be expected based on industry average returns on
tangible assets.

Any additional return is assumed to be the return on intangible assets.

This additional return is assumed to continue in perpetuity and can be converted

into a present day value for intangibles (the Calculated Intangible Value, or CIV)

by discounting at the company’s cost of capital. Then:

Total value of the entity = Value of tangible assets + CIV

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