Valuing Intangible Assets in the Digital Economy

Ocean Tomo’s long-running Intangible Asset Market Value Study tracks how the composition of corporate value has shifted over five decades. In 1975, tangible assets accounted for around 83% of the market value of S&P 500 companies. By the most recent study, intangible assets account for approximately 92%, leaving roughly 8% attributable to property, plant, equipment and inventory.

That inversion is the single most useful number to hold in mind when valuing a technology-driven business, because it describes a gap between what the accounts record and what the market prices.

Why the balance sheet understates intangible value

Under IFRS and US GAAP, internally generated brands, mastheads, customer lists and similar items are generally not recognised as assets. An acquired brand appears on the balance sheet; the same brand built internally does not. The consequence is that the more successfully a company builds its own intangibles, the less of that value its balance sheet shows.

This is not an accounting failure so much as a deliberate reliability trade-off. But it means book value is a poor starting point for valuing a business whose economics are driven by data, code, brand or customer relationships.

What actually has to be measured

Valuing an intangible asset requires isolating the earnings attributable to that specific asset — which is harder than it sounds, because intangibles rarely generate cash independently. The established approaches each handle this differently.

Relief from royalty asks what the business would have to pay to license the asset if it did not own it. It suits brands, trademarks and patents where observable licensing markets exist.

Multi-period excess earnings isolates the cash flows attributable to the subject asset after deducting contributory asset charges for the other assets used to generate them. It is commonly applied to customer relationships and core technology.

Cost approaches estimate what it would take to recreate the asset. They are most defensible for assets like internally developed software where recreation cost is genuinely observable, and least defensible where value is driven by market position rather than build cost.

Where the discipline is going

The 2025 edition of the International Valuation Standards, effective 31 January 2025, added new chapters on Data & Inputs, Documentation and Financial Instruments. The emphasis on data quality and documented reasoning is directly relevant here: with intangibles, the evidence chain behind an input is often the difference between a conclusion that survives audit and one that does not.

Three practical points

Understand the commercial use, not just the legal registration. A patent portfolio’s value depends on what it protects in the market, not on how many filings it contains.

Match the method to the asset and the purpose. Applying one methodology uniformly across a portfolio is a common source of challenge in purchase price allocation review.

Document the contributory asset charges. In excess earnings work these determine the result, and they are the first thing an auditor will test.