News

IP valuation - A practical guide with Excel template

Introduction:

IP valuation is a crucial step in understanding the value of your intellectual property (IP) rights, such as patents and property rights, and making strategic decisions for your company. There are different methods for IP valuation, each offering its own advantages:

- Cost-based IP valuation: This method is based on the historical costs incurred in the development or acquisition of the IP. Although this method is easy to apply, it does not take into account the market value or earnings potential of the IP.

- Market-based IP valuation: Here, the value of the IP is determined by comparing it with similar transactions on the market. This method is useful if comparable data is available, but can be difficult if the IP is unique.

- Income capitalisation approach: This method focusses on the future economic benefit of the IP by discounting expected cash flows to the present value. It is particularly suitable for IP that generates direct income or makes a significant contribution to value creation.

In this article, we will focus on the capitalised earnings method as one of the most widely used methods for IP valuation. You can use our Excel template to apply this method directly and make an initial rough estimate of the value of your patents.

Why use the capitalised earnings method for IP valuation?

IP valuation using the capitalised earnings method provides a structured and comprehensible method for determining the financial value of IP assets and offers the following advantages:

- Make strategic decisions, e.g. whether you should invest in further patents, protect existing ones or sell them.

- Recognising economic potential that can be realised through your patents.

- Manage risks by creating a sound basis for dealing with legal or market-related uncertainties.

Steps for IP valuation using the capitalised earnings value method:

1. forecast of future earnings:

- Enter the expected turnover that is protected by your patents. Use the field for known turnover in the Excel template for this.

2. determination of the licence payments:

- The template calculates the value of individual patents based on your entries, taking into account the first licence payments and the periodic licence amounts. You can determine the licence fees for each period individually.

3. discounting of future cash flows:

- The future licence payments and sales revenues are discounted to today's value. The Excel template uses a discount rate that you can adjust depending on the risk and capital requirements of your company.

4. calculation of the net present value (NPV):

- The template automatically performs a net present value calculation that shows you the current economic value of your patent. A positive NPV indicates that the expected income exceeds the costs and risks.

Application of the Excel template for IP valuation:

To make the IP valuation easier for you, we have created an Excel template that will help you step by step through the capitalised earnings value procedure:

How to use the Excel template:

1. Enter data: Open the "Enter values" tab and enter the relevant information on your sales, the number of patents and the expected licence payments.

1. Adjust discount rate: Make sure that the discount rate in the template corresponds to your company-specific requirements. You can adjust this on the "Calculation" tab.

1. Check results: The "Results" tab gives you an overview of the calculated value of your patents, based on the data entered and the calculated net cash values.

Best practices for IP valuation:

- Update your entries regularly to reflect current market conditions and changes in your business strategies.

- Use the calculations as a starting point: This Excel template provides a rough estimate. For more detailed analyses, it may be useful to use other methods or consult external experts.

- Take a comprehensive view of risks: In addition to financial calculations, legal and market-related risks should also be included in your strategic considerations.

Conclusion: Optimise your IP rating

The IP valuation with the capitalised earnings value method provides you with the tools to quantify the value of your patents and property rights. You can start straight away with the Excel template and make an initial rough estimate. Download the template, fill in your data and get the value of your intellectual property!

Download the Excel template now and start your IP assessment!