Aswath Damodaran on Brand Name Valuation

Via Aswath Damodaran
The Interbrand rankings of the top brand names in the world are out. As always, they have created buzz in the financial press, with the big news story being the displacement of Coca Cola from its perennial number one spot and the rise of technology companies (Apple and Google have the first two spots and there are four other tech companies in the top ten) in the rankings. Here is the listing of the top ten brand names from 2012 and 2013:
Interbrand, in addition to ranking the brands, also provides estimates of value with Apple’s brand name value estimated at $98.3 billion and Coca Cola’s at $79.2 billion.

Why brand name valuation matters

If you are an investor or even a corporate manager, you may believe that these brand name rankings matter little, since all they do is parse the value of a company into its component parts. These rankings do, however, raise interesting questions about the power of a brand name and how it manifests itself in earnings power and in value. In fact, there are good reasons why you may want to value brand name independently. From a valuation perspective, separating how much of the value of a company can be attributed to its brand name is important in a variety of contexts:
  1. Sale of a brand name: If a company is considering selling its brand name alone, while holding on to its physical assets, you have to be able to value the brand name separately from the rest of the business.
  2. Legal disputes over brand names: Brand names become the subject of legal disputes, with each party claiming the lion’s share of value. Without knowing how to value the brand name and the drivers of that value, you cannot apportion the value to the disputing parties.
  3. Accounting “fair value”: The shift in accounting towards fair value from original book value has opened the door to accountants also trying to estimate the value of intangibles such as brand names, trademarks and customer lists. While I don’t think this is a good idea and have said so in other forums, it is clearly the trend in international accounting.

Full article http://aswathdamodaran.blogspot.com/2013/10/the-brand-name-advantage-valuable.html

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