Valuing intangibles companies – An intellectual capital approach

There is a dramatic increase in the number of companies whose value lies largely in their intangible assets; with relatively little or no value associated with their tangible assets. Traditional methods of valuation, based on accounting principles, where the value of the firm’s assets is a portion of the value, have systematically undervalued companies such as these. This article discusses the problem of valuing intangibles companies and suggests two approaches to determining their value. It also describes two common circumstances where company value is desired and discusses how value may be determined using a non‐traditional perspective on the company along with traditional methods for valuation. The two circumstances examined are the going‐concern value and the value under merger or acquisition circumstances (recognizing that these two circumstances produce very different valuations for the corporation).