Intangible Assets

[Nero64]

Do you guys use Intangible Assets + Net tangible Assets when working out the liquidation value of a company.

For example:

300Mill Tangible Assets (TA)
400Mill Intangible Assets (IA)
100Mill Liabilities (L)

TA + IA - L

300 + 400 - 100

= 600 Mill

Shares outstanding = 500 Mill

600Mill / 500Mill

= 1.2 Liquidation value

Current share price = $1

1/1.20 * 100 = 83% (Of Liquidation price)

Current share price is trading at 17% discount to the Liquidation value of the company.

 

[alphaman]

You simply cannot use book values to determine liquidation values (unless the asset is cash).

 

[doctorj]

Do you guys use Intangible Assets + Net tangible Assets when working out the liquidation value of a company.

What is the value of intangibles in the current market? I guess it depends on the nature of the intangible.

IP probably has some value (though, I'd be asking some serious questions if it hasn't been impaired during the crisis), but its also worth factoring in the stage of development the IP is at. IP relating to a near-final development stage product would be valuable, but capitalised R&D for a product at an early stage probably isn't very valuable in the current market.

As for Goodwill - mark it all to 0! Premiums paid on acquisitions at the top end of the market aren't worth the paper the purchase agreements were printed on.

Then as Alphaman said, if you're looking at the liquidation value of a company, that's a whole different kettle of fish.

 

[Farang]

Im reading Security Analysis 1940 edition, read about liquidation value a few pages ago. Heres Ben Grahams take on it:

from page 579:

Type of asset: | % of liquidating value
....................| Normal range | Rough avg.
Current assets:
Cash:.............|...100............|...100
Receivables:....|..75-90..........|...80
(less usual reserves)
Inventories......|..50-75..........|...66 2/3
(at lower cost or market)
Fixed and
miscelleneous
assets:...........|..1-50............|...15(approx)

 

[Sugar Dunkaton]

I would assume the if you are talking about a "liquidation value", you would be looking at tangible assets only and at a value equal to Cash + Net Realisable value of Tangible assets (not book value).

Intangible assets have no value if a company does not exist anymore (is liquidated).

 

[awg]

http://www.openforum.com.au/intangibles


a small excerpt....

"More importantly, in an economy where the unmeasured enterprise value keeps gaining traction (research suggests that up to 60 per cent the total value of the US stock market fits this description); understanding, measuring, managing and disclosing the performance of its drivers becomes critical – and not only in terms of aligning theoretical and real value of a corporation more closely."

A different example of a debate about value of Intangibles has taken place on the BBI thread where 50yr lease value on DBCT is very relevant to sale value of asset

 

[Abcguy]

When a company goes into liquidation do you really think they could sell their intangibles to pay of debts when the intangibles will be worth nil? It'll be like selling the air your breathe. Therefore, ask yourself, how can this make up the liquidation value?

 

[gfresh]

Yes, no, maybe?

For instance, theoretically say the Coca Cola company went bankrupt... While the "CocaCola" brand would no longer be around, the intangible method, recorded knowledge and formulas for producing that exact product would still surely be worth a considerable amount of money to another co. out there. How much exactly would be very hard to determine. Unless these assets were recorded on the balance sheet as tangible assets?