Residual Value

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.

The present value of future profits from existing business, plus adjusted net asset value. Originally developed for insurance companies, the concept is increasingly applied to any business with long-duration revenue streams, subscription contracts, or intangible assets that generate predictable future cash flows.

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.

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 price at which an asset would change hands between a willing buyer and a willing seller, neither being under compulsion to transact, and both having reasonable knowledge of the relevant facts. Fair market value is the standard used in most asset valuation contexts.

The cash a company generates from operations after deducting capital expenditures. FCF represents the cash available to pay dividends, reduce debt, or reinvest in the business, and is a key input in discounted cash flow valuations.

Government-granted exclusive rights to an invention, giving the patent holder the right to prevent others from making, using, or selling the invention for a specified period (typically 20 years). Patents are among the most clearly defined and legally enforceable intangible assets.

A graphical representation showing the proportion of an asset population that remains in service over time, plotted from 100% at inception to 0% at the end of the longest-surviving unit's life. Survival curves are used in intangible asset valuation to model the expected decay pattern of customer relationships, subscriber bases, and other wasting intangibles.

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.

What is goodwill impairment and when does it occur?

Goodwill impairment occurs when the fair value of a business unit (cash-generating unit) falls below its carrying amount — goodwill is written down, reducing reported earnings.

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.