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Intellectual Property

Is the value of your intangible assets/intellectual property (IP) stated on your firm's balance sheet? Most likely it is not. Thus, the value of your company is also understated.

Unless the IP was acquired, either separate from or as part of a company purchase, the value is usually not reflected on the balance sheet. The only exception is if the time and materials cost to develop the IP is recorded and capitalized. On many balance sheets, the IP amount is non-existent.

Intangible assets or intellectual property (IP) are distinguished from general intangibles, such as goodwill, which have no definable useful life. The valuation of an IP is usually the most tenuous, complex, and creative exercise of any valuation or appraisal. The Mentor Group has unique expertise to place value on any IP.

Without some historical data on use of the IP to generate income/profits or save costs, estimating IP valuation is much more subjective. The key is to develop some reasonable data points about the market and future expected cash flows. These data points become the lynch pin around which a discounted cash flow case can be constructed. Our senior professionals ensure that a reasonable, well-documented, and credible analysis is delivered.

IP value is inextricably linked to the remaining useful life. The cash flow projection period is premised on the estimated useful life. The value of an IP is the present value of the after-tax income plus the present value of the tax benefits of amortization.

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