Embedded Value

An actuarial valuation methodology used to value life insurance companies, representing the present value of future profits from the existing book of insurance policies (the value of in-force business) plus the adjusted net asset value of the company. Embedded value is the standard valuation framework for life insurers and is analogous to the net asset value plus intangible asset value approach used in other industries.

The estimated value of a business or asset beyond the explicit forecast period in a discounted cash flow analysis, representing the bulk of total enterprise value for long-lived assets. Terminal value is calculated using either a perpetuity growth model or an exit multiple approach and is particularly significant for intangible-intensive companies with long-duration competitive advantages.

A structured strategy developed by private equity firms or management teams to systematically increase the value of a business over a defined holding period. Value creation plans typically address revenue growth, margin improvement, operational efficiency, and intangible asset development.

The total net revenue a business expects to earn from a single customer over the entire duration of the relationship. LTV is driven by average revenue per user, gross margin, and retention rates, and is directly influenced by brand and relationship intangibles.

The integration of financial services — such as payments, lending, insurance, or investment — directly into non-financial platforms and customer journeys. Embedded finance enables companies like e-commerce platforms, SaaS providers, and gig economy marketplaces to offer financial products without becoming licensed financial institutions, typically through Banking-as-a-Service partnerships.

The estimated value of an asset at the end of its useful life or the end of a forecast period. In intangible asset valuation, residual value considerations are important for assets with finite lives, such as patents approaching expiration, as well as for terminal value calculations in discounted cash flow models.

A private equity and venture capital performance metric combining both realised returns (distributions) and unrealised value (remaining portfolio value) relative to total capital contributed. TVPI equals DPI plus RVPI and provides the most complete picture of a fund's overall performance.

A hierarchical diagram that breaks down a company's enterprise value into its component financial and operational drivers, mapping how inputs such as customer acquisition, pricing, retention, and productivity combine to produce revenue, profit, and cash flow. Value driver trees are essential for identifying where intangible asset investments create the greatest impact.

How do you value a franchise agreement as an intangible asset?

Franchise agreements are valued using the income approach based on the present value of franchise fee income and royalty streams over the remaining agreement term, adjusted for renewal probability.

How does impairment testing work for intangible assets and goodwill?

Intangible assets with finite lives are tested for impairment when indicators of value decline exist, while goodwill and indefinite-life intangibles must be tested at least annually by comparing carrying value to recoverable amount.

How do you test goodwill for impairment under current accounting standards?

Goodwill impairment testing compares the carrying amount of a cash-generating unit to its recoverable amount (higher of fair value less costs to sell and value-in-use), with any shortfall recognised as an impairment loss.

How does IAS 36 impairment testing work for intangible assets?

IAS 36 requires comparing the carrying amount of an asset or cash-generating unit to its recoverable amount (the higher of fair value less disposal costs and value-in-use). If carrying exceeds recoverable, an impairment loss is recognised.