Brand Valuation: Accounting Perspective

Brand Valuation: Accounting Perspective

Abstract:

Brands are one the most valuable assets for any business firm without any doubt. But this value

is subjective in nature and it is very difficult to arrive at an absolute, quantified value for the

treatment in financial statements. Last 3 decades witnessed the lots of debate in this area of

discipline. This paper explores the evolution in the accounting for the brands in recent past and

trouble with the valuation of brands. It also discusses briefly different approaches of brand

valuation.

Introduction:

Flipkart has bought a major stake in Myntra in a cash and stock deal that could value the

company between $300-330 million (Firstpost.com, 21 May 2014).

Snapdeal buys Freecharge for $400m (Times of India, 9Apr 2015)

What makes above news interesting? By looking at these deals, one can wonder what makes

these companies that much of worth? The net tangible assets possessed by these firms cannot

justify these valuations. So, there must me something more than the tangible assets which

enhanced the value of these companies. These can be termed as intangible assets which may

include goodwill, customer base, patents, copyrights, staff capabilities, and above all the power

of brands. As John Stuart, President Quaker Oats in 1922 said “If this business were to be split

up, I would be glad to take the brands, trademarks and goodwill, and you could have all the

bricks and mortar -and I would fare better than you.” (Marquette, 1967). This paper will explore

the Brand value aspect of this intangible asset. Before going into the details in the realm of brand

value, it is imperative to understand the meaning of the brand.

Definition of Brand:

Word brand has its root in German origin which means ‘Burning’. Initially, this word was used

for the identity marks made by burning iron on livestock or criminals for their easy

identification. From there it is adopted in marketing.

Kotler defined brand from the marketing perspective which says “name, term, sign symbol (or a

combination of these) that identifies the maker or seller of the product".

Seetharaman et al. in his article titled “A conceptual study on Brand Valuation” defined brand

from the accounting perspective. They said “A brand can be defined as an asset that does not

have physical existence and the value of which cannot be determined exactly unless it becomes

the subject of a specific business transaction of a sale and acquisition.” (Seetharaman, Nadzir, &

Gunalan, 2001)

In simple words, brand can be defined as the name or symbol that is intended to identify goods

or services of one seller from the other sellers.

Brand Value :

Often a company’s brand value exceeds its net tangible assets. There are many examples of such

valuation in business history. Such as acquired acquisition of Kraft Foods by Philip Morris Co. at

whopping $12.9 billion which included an estimated $ 11.6 billion for intangibles. The

Following table represents the value of some top brands:

Table :1 Brands account for a considerable share of companies’ market