Selecting the Right Method for Your Asset
Valuation Methods — Lesson 8 of 10
Lessons 2 through 6 examined each valuation method in detail. This lesson synthesises that knowledge into a practical decision framework. The question every valuer, CFO, and transaction advisor faces is not "how does this method work?" but "which method should I use for this specific asset, in this specific context, with this specific data?"
The answer depends on three factors: the type of asset being valued, the data available to support the analysis, and the purpose of the valuation. Getting the method selection right is as important as executing the method correctly — a perfectly executed RFR on an asset better suited to MPEEM will produce a precise but misleading answer.
Method selection is a structured decision, not a preference. The asset type narrows the options, data availability determines feasibility, and the valuation purpose may impose regulatory requirements. Professional practice requires applying at least two methods as a cross-check. If two methods produce materially different results, the assumptions — not the methods — need investigation.
The Three Selection Criteria
Criterion 1: Asset Type
Different intangible assets have natural affinities with specific methods. This is the primary driver of method selection.
Primary Method Selection by Asset Type
| Asset Type | Primary Method | Why | Secondary Method |
|---|---|---|---|
| Brand / trade name | RFR | Royalty savings directly measurable; licensing data available | Market (brand rankings) |
| Customer relationships | MPEEM | Primary earnings driver; attrition can be modelled | DCF (if isolable revenue) |
| Patents | RFR | Licensing rates well-documented; royalty databases extensive | DCF |
| Proprietary technology | RFR or DCF | Depends on whether licensing data or direct cash flows are more available | W&W |
| Non-compete agreement | W&W | Value is defensive; requires scenario comparison | None — W&W is standard |
| Assembled workforce | Replacement cost | No direct cash flows; cost to recreate is estimable | None — cost is standard |
| Internal-use software | Replacement cost | No external revenue; reproduction cost is directly estimable | DCF (if cost savings quantifiable) |
| Domain name | Market | Active transaction market exists | RFR |
| In-process R&D | DCF or W&W | Cash flows depend on completion probability | Cost (as floor value) |
| Favourable contracts | DCF | Value is the difference between contract and market terms | W&W |
| Content library | Market or RFR | Licensing precedents exist for content categories | DCF |
| Franchise agreements | DCF | Cash flows are contractually defined | Market (if comparable franchises exist) |
Criterion 2: Data Availability
Even when a method is theoretically optimal, it may not be feasible if the required data is unavailable.