Investors should know intangibles’ value

Ben McClure, director of Bay of Thermi Limited, as a frequent writer on investment topics, feels that the difficulty in measuring intangibles and the volatility inherent in the simplistic mark-to-market approach forces investors to ignore what might be sizeable value.

Here Ben recommends at least starting with the CIV method (Calculated Intangible Value):

1)    Calculate the average pretax earnings for a three-year period;

2)    On the balance sheet, get the average year-end tangible assets for the same three years;

3)    Calculate the company’s return-on-assets by dividing earnings by assets;

4)    For the same three years, find the industry’s ROA;

5)    Multiply the industry average ROA times the company’s tangible assets (determined in #2); subtract the result from the pre-tax earnings determined in #1, yielding how much more the target company earns from its assets than the average in the industry;

6)    Tax affect the result, if appropriate;

7)     Calculate the net present value of the premium, yielding an estimate of the value of the intangibles.