Intangible good

economic-dictionary

An intangible good is one that is not perceptible by the senses and does not occupy a physical space.

That is to say, this type of good does not have a corporality, it is not observable and it cannot be touched either.

In simple terms, an intangible asset is immaterial, unlike tangible assets. Therefore, its size cannot be measured or counted, as can be done with vehicles or pencils, for example.

The importance of these assets lies in the fact that, despite not being observable, they add value to a company.

Examples of intangible assets are brands, the reputation of the company, the secret formula to produce a merchandise, among others.

Intangible assets and knowledge

Intangible assets are closely related to knowledge. That is, they usually belong to the field of ideas, such as the know-how of a franchise.

In the previous case, the procedures followed by the franchise to satisfy its clients is part of a formula that adds value to the firm.

Another example of intangible assets is usually artistic creations such as music or books. Thus, to protect the economic rights of its creators, patents are usually granted that protect intellectual property.

Brands and intangibles valuation methods

Some methods of valuation of brands and intangibles are:

  • The value of the company (shares plus financial debt).
  • Difference between the market value and the theoretical book value of the firm's shares (Market added value).
  • The difference between the value of the company that owns the brand and the value of another firm that sells non-branded products (white label). This difference can be made based on:
    • Difference in product prices.
    • Value of the extra sales volume.
    • Difference of ratios (Capitalization / sales).
  • The present value of the company's free cash flow minus the assets used for the required profitability.
Public good

Tags:  banks ranking economic-analysis 

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