Glossary of Terms
A-Z dictionary of brand valuation terminology

Helpful A-Z dictionary of brand valuation terms and their definitions. Learn about Brand Value, Brand EquityEnterprise Value and more.

 

For more information, see our Branding FAQs and Brand Valuation Methodology.

  • Brand

    A bundle of trademarks and associated IP which can be used to take advantage of the perceptions of all stakeholders to provide a variety of economic benefits to the entity.

     

  • Brand Audits

    A compliance assessment of the commercial and visual aspects of a brand and an interpretation of its impact on current and future financial performance.

  • Brand Due Diligence

    A thorough investigation into the brand, the brand management, the market it operates in, any legal protections as well as the overall governance structure supporting the brand.

    This may also be referred to as a 'brand audit' and is most often conducted either when acquiring a new brand, or periodically as an internal check on the state of brand management, brand value and brand governance.

  • Brand Equity

    A term used in the marketing and branding world to describe the relative stature of different brands and to facilitate dialogue around how a brand asset may be measured.

    There are a number of alternative senses in which the word is commonly used. Feldwick (1996) presents three separate common practice usages of the term Brand Equity:

    1. The total value of a brand as a separable asset when it is sold or included on a balance sheet (Brand value)
    2. A measure of the strength of consumers' attachment to a brand (Brand Strength)
    3. A description of the association and beliefs the consumer has about the brand (Brand Description)

    Brand Finance uses the second definition in its literature. In particular, Brand Equity is used as an element of our Brand Strength Index and covers all stakeholders, not only consumers. It is used as a step in our brand valuation process.

  • Brand Licensing

    An activity allowing external third parties or internal group companies to use a brand or trademark. Fee structures vary and may be fixed depending on specific circumstances.

    Check out our whitepaper on Key considerations for building our a new licensing program for more information about licensing and how Brand Finance can assist.

  • Brand Name

    The element of a brand that could be registered as a "wordmark" and form part of the "bundle of trademarks" that constitute the legal protection for a brand.

  • Brand Rating

    With reference to Brand Finance literature, the term "Brand Rating" is a summary opinion, similar to a credit rating, on a brand based on its strength as measured by Brand Finance's 'Brand Strength Index' (BSI).

    Brand Rating Brand Strength Description
    AAA 80-100 Extremely Strong
    AA 65-80 Very Strong
    A 50-65 Strong
    BBB-B 35-50 Average
    CCC-C 20-35 Weak
    DDD-D 0-20 Failing
  • Brand Strength

    A measure of the efficacy of a brand’s performance on relevant metrics, relative to its competitors.

    This concept may be gauged in both qualitative or quantitative ways and will differ from agency to agency.

  • Brand Strength Index (BSI)

    A score between 0 and 100 Brand Finance uses to quantifies the Brand Strength of a brand. It is a competitive benchmarking tool that identifies the strength of each brand in question. 

    For more information on how the Brand Strength Index is calculated, read the FAQ section.

    For more information on how the Brand Strength Index is used, read the methodology page here.

  • Brand Valuation methods

    ISO 10668: Brand Valuation, identifies 3 approaches to brand valuation: the market approach, the cost approach and the income approach.

    Market Approach

    Cost Approach

    Income Approach

    The ISO Standard lists the following income based methods of determining the cash flow attributable to a brand.

    Direct methods (primarily using revenue)

    Indirect methods (primarily using profit)

    Brand Finance uses the Royalty Relief method for its public rankings, however frequently uses other methods for clients to suit their specific need and situation.

  • Brand Value

    The capital value of economic benefits brought to an entity through use of a brand. This is most commonly done as net present value of the estimated additional future cash flows generated by the brand for the organisation.

    For more information on Brand Valuation, have a read of our whitepaper on Value-Based Brand Management - Conducting Brand Valuations

    For our rankings, like the Global 500, Brand Finance uses the Royalty Relief (also known as Relief from Royalty). For more information see the methodology page here.

    Brand Value is also used by some interchangeably with Brand Equity. Brand Finance considers the two terms to be distinct.

  • Brand Value Added

    Brand Value Added (BVA®) is Brand Finance's proprietary method of determining the proportion of the residual economic profit attributable to the brand. This analysis is based on a comprehensive appraisal of market research available within the business unit.

  • BrandBeta

    BrandBeta® is Brand Finance's proprietary method for adjusting a weighted average cost of capital (WACC) to arrive at a specific discount rate for each brand (based on its Brand Rating).

    Companies with stronger brands are more resilient and less volatile than those with weaker brands.

  • Branded Business

    The business or cash generating unit operating under a single brand.

    A company with a large number of brands in its portfolio such as Unilever may have many branded businesses within its overall enterprise. Other companies operating only one brand the total enterprise will be equivalent to the branded business.

  • Capital Asset Pricing Model (CAPM)

    A financial model in which the cost of capital for any stock or portfolio of stocks equals a risk-free rate plus a risk premium that is proportionate to the systematic risk of the stock or portfolio.

    Brand Finance uses CAPM in the calculation of the discount rate used in our valuations.

  • Cash Flow

    Cash that is generated over a period of time by an asset, group of assets, or business enterprise. It may be used in a general sense to encompass various levels of specifically defined cash flows.

  • Cost Approach

    This approach measures the value of a brand based on the cost invested in building the brand, or its replacement or reproduction cost. It is based on the premise that a prudent investor would not pay more for a brand than the cost to replace or reproduce it.

  • Discounted cash flow (DCF)

    A method of evaluating an asset value by estimating future cash flows and taking into consideration the time value of money and risk attributed to the future cash flows.

  • Effective Date

    Also known as Valuation Date or Appraisal Date.

    The specific point in time, as of which the valuator's opinion of value applies.

  • Enterprise value

    The combined market value of the equity (market capitalisation) and debt of a business less cash and cash equivalents. If you add up all the assets in a business (both tangible, like buildings and machines, and intangible, like brand value, patents, airport landing slots, a trained-up workforce, and also Goodwill) this gives you the enterprise value.

  • Goodwill

    An intangible asset recognised in a business combination is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. The future economic benefit may result from synergy between the identifiable assets acquired or from assets that, individually, do not qualify for recognition in the financial statements.

    Goodwill is generally treated as having an indefinite useful life so not amortised in company accounts but instead requires annual impairment reviews.

    Prior to the introduction of IFRS 3: Business Combinations, Goodwill was used to refer to all Intangible assets.

    Our whitepaper on Goodwill Hunting: How Not to Miss the Mark in Financial Accounting has more information about reporting goodwill and how Brand Finance can assist.

  • IAS 36 - Impairment of Assets

    The objective of IAS 36 is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and the Standard requires the entity to recognise an impairment loss. The Standard also specifies when an entity should reverse an impairment loss and prescribes disclosures.

    IAS 36 applies to (among other assets):

    Land, buildings, machinery and equipment, investment property carried at cost, Intangible Assets, goodwill, investments in subsidiaries, associates, and joint ventures, assets carried at revalued amounts under IAS 16 and IAS 38

    IAS 36 does not apply to:

    Inventories (IAS 2), assets arising from construction contracts (IAS 11), deferred tax assets (IAS 12), assets arising from employee benefits (IAS 19), financial assets (IAS 39), investment property carried at fair value (IAS 40), certain agricultural assets carried at fair value (IAS 41), insurance contract assets (IFRS 4), assets held for sale (IFRS 5).

  • IAS 38 - Intangible Assets

    The objective of IAS 38 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another IAS. The Standard requires an enterprise to recognise an intangible asset if, and only if, certain criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires certain disclosures regarding intangible assets.

    IAS 38 applies to all intangible assets other than:

    • Financial assets
    • Mineral rights and exploration and development costs incurred by mining and oil and gas companies
    • Intangible assets arising from insurance contracts issued by insurance companies
    • Intangible assets covered by another IAS, such as intangibles held for sale, deferred tax assets, lease assets, assets arising from employee benefits, and goodwill. Goodwill is covered by IFRS 3

    Please note this is a summary of IAS 38, for more detailed information please contact Brand Finance, or visit www.iasb.org

  • IFRS 3 - Business Combinations

    IFRS 3 outlines the accounting treatment following a business combination, which originally referred to bother mergers of equals as well as acquisitions, however since revisions in 2008, one entity must be deemed the acquirer.

    Intangible asset treatment in IFRS 3

    Prior to IFRS 3, intangible assets had been referred to simply as Goodwill. The need to identify all assets gave rise to five intangible asset classes with Goodwill now as a balancing figure. The five classes are as follows:

    • Artistic-related intangible assets
    • Marketing-related intangible assets
    • Technology-based intangible assets
    • Customer-related intangible assets
    • Contract-based intangible assets

    Brand value sits within the marketing-related intangible assets.

    Areas not covered in IFRS 3

    IFRS 3 does not apply to the formation of a joint venture, combinations of entities or businesses under common control. The IASB added to its agenda a separate agenda project on Common Control Transactions in December 2007. Also, IFRS 3 does not apply to the acquisition of an asset or a group of assets that do not constitute a business.

  • Income Approach

    The income approach values a brand as the present value of the future earnings that it is expected to generate over its remaining useful economic life. This is a commonly used approach to value businesses and other assets. Specific assumptions that require research and analysis include the brand’s current cash flows, forecast growth, the risk associated with future earnings, the brand’s useful economic life, and tax considerations.

    The ISO Standard lists the following income based methods of determining the cash flow attributable to a brand.

    Direct methods (primarily using revenue)

    Indirect methods (primarily using profit)

  • Income-split method

    Values the brand as the present value of the portion of economic profit attributable to the brand. Behavioural research is used to determine the brand’s contribution to economic profit.

  • Incremental cash flow method

    Identifies the cash flow generated by a brand in a business through comparison with a comparable business which does not own a brand.

  • Intangible Asset

    In accounting terms, an asset is defined as: a resource that is controlled by the entity as a result of past events from which economic benefits are expected to flow to the entity. The International Accounting Standards Board definition of an intangible asset requires it to be: an identifiable, non-monetary asset without physical substance, where the identifiability criteria is that the asset is separable from the organisation or arises from contractual or legal rights.

  • ISO 10668 - Brand Valuation

    The International Standard ISO 10668 specifies requirements for procedures and methods of monetary brand value measurement. ISO 10668 specifies a framework for brand valuation including objectives, bases of valuation, approaches to valuation, methods of valuation and sourcing of quality data and assumptions. It also specifies methods of reporting the results of such valuation.

  • Market Approach

    The market, or sales comparison approach, measures value in comparison with transactions, for similar brands. This approach requires a detailed evaluation of the comparability of the two brands, considering factors such as the markets in which they operate, relative brand strength, legal protection, and the economic outlook at the times of the transactions. Account has to be taken of the fact that the price negotiated in a transaction may reflect strategic values and synergies that are not available to the present owner.

  • Mid Year Discounting

    A convention used in the Discounted Future Earnings Method that reflects economic benefits being generated at midyear, approximating the effect of economic benefits being generated evenly throughout the year.

  • Multi-period excess earnings method

    Values the brand as the present value of the future residual cash flow after deducting returns for all other assets required to operate the business.

  • Net Present Value

    The present value of the difference between cash inflows of an asset or business and the cash outflows in a given time period.

  • Present Value

    Present Value is the value, as of a specified date, of future Economic Benefits and/or proceeds from sale, calculated using an appropriate Discount Rate.

  • Price Premium method

    Estimate the value of a brand by reference to the price premium that it generates. In situations where a brand yields both a profit and volume premium, both methods should be applied. Consideration should also be given to cost efficiencies resulting from the brand.

  • Report Date

    Report Date is the date conclusions are transmitted to the client.

  • Reputation

    Reputation decribes the perceptions of the brand, which gives it power and drives its value. It is based on both real and perceived performance of the products and sevices, and affects stakeholder perceptions and behaviour.

    Under accounting rules, reputation does not satisfy the identifiability criteria of an asset since it is neither seperable nor does it arise from contractual or legal rights. As such Brand Finance considers reputation to be an important element contributing to brand value, but not to be an asset itself.

  • Royalty Relief

    The 'Royalty Relief' (also known as Relief from Royalty) method is based on the notion that a brand holding company owns the brand and licenses it to an operating company. The notional price paid by the operating company to the brand company is expressed as a royalty rate. The Net Present Value (NPV) of all forecast royalties represents the value of the brand to the business.

    For more information on the steps involed in a Royalty Relief brand valuation, please see our methodology page.

  • Rule of Thumb

    A ‘Rule of Thumb’ exists within the licensing industry which states that, on average, a licensee would expect to pay approximately 25%-40% of its expected pre-tax profits for access to the Intellectual Property (which could include brands) attached to the license itself.

    Often refered to as the 'Rule of 25%' it is commonly referred to in transfer pricing studies and legal cases and is supported empirically (Robert Goldscheider, John Jarosz & Carla Mulhern, ‘Use of the 25% Rule in Valuing IP’, 37 Les Nouvelles 123-124 (December 2002)). The theory behind the Rule of 25% is that whilst both licensor and licensee should share in the profits resulting from the IP being licensed, it is usually the licensee that takes the majority of profits for its role in exploiting the property, bearing risk and providing a return on the other assets in its business.

    It should be noted that following a US judgement in 2011, the Rule of Thumb cannot be used as the basis for patent damage in the US. Its use in valuations should always be corroborated with other analysis where possible.

     

  • Terminal Value

    Terminal Value (also known as residual value or perpetuity value) - the value as of the end of the discrete projection period in a discounted future earnings method.

    This is often a material part of a brand valuation because we deem a brand to have an indefinite useful life in most situations.

  • Useful Economic Life (UEL)

    The period of time over which an asset may generate economic benefits.

    Brand Finance assumes all brands have an indefinite useful economic life unless demonstrated otherwise. 

  • Valuation Date

    Also known as Effective Date or Appraisal Date

    The specific point in time as of which the valuator's opinion of value applies.

  • Volume premium method

    Estimate the value of a brand by reference to the volume premium that it generates. In situations where a brand yields both a profit and volume premium, both methods should be applied. Consideration should also be given to cost efficiencies resulting from the brand.

  • Weighted Average Cost of Capital (WACC)

    An average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is assigned a required rate of return, and then these required rates of return are weighted in proportion to the share each source of capital contributes to the company's capital structure.

    Brand Finance have developed a proprietary method for adjusting WACC, called BrandBeta (βrandβeta®).