Purposes and Benefits of Economic Brand Assessment
Concept: The process of valuation of a brand represents the identification of its true economic value, based on the realization that it generates positive cash flows for its owner.
Objectives of economic brand valuation
The brand’s owners intend to know this economic value in order to make accounting arrangements, negotiations with third parties or even their accounting.
The economic evaluation of the brand when elaborated according to internationally accepted methodology allows the company to obtain the following benefits:
- Increase in fixed assets of the company;
- Increase of net equity of the company;
- Reduction of the company’s degree of indebtedness as a result of increasing equity, facilitating relationships with banks, suppliers and other creditors.
The consulting company that prepares the economic appraisal report of the brand and its Technical Responsible must be registered with the Regional Economics Council, in the region where the work is performed.
The economic value of the brand can be activated in the balance sheet, resulting in an equity adjustment with positive effects on the company’s capital structure.
Nothing indicates the prohibition of brand valuation and activation in the balance sheet in the current Income Tax legislation and in the Brazilian Corporate Law.
It is our understanding that the current legislation at the Brazilian Patent and Trademark Office (BPTO) has established the trademark as one of the assets of the company subject to negotiation. Therefore, the valuation of the trademark and its accounting will not be subject to any tax provided it is kept in the equity adjustment account and is not sold.
It is a fundamental assumption, as established by Law 6404/76, article 8, that the economic assessment of the abovementioned trademark is prepared by a company specialized in evaluations and / or signed by 3 (three) experts, which is a necessary and fundamental condition.
Fusions and acquisitions
It allows the company to trade in better conditions, provided that the brand is previously evaluated, considering its market share and other market variables.
The trademark, provided it is properly registered with the BPTO, may constitute bank guarantees.
Brand value has exceptional economic weight for capital market analysts.
Strong and well-known brands have higher stock prices than equity.
It also allows the recognition of “notoriety”, besides being considered as movable good according to the Industrial Property Law No. 9279 – 14/05/96, article 5. Therefore, they can be valued like any other asset that generates continuous income.
As we could discuss in the previous items, the determination of the economic value of brands requires technique and skill, since intangible assets require care and attention to the variables and numbers involved.
The modern methodology we use involves treating two types of variables; qualitative and quantitative.
- a) qualitative variables – in which we identify and analyze variables that address the market aspects related to the participation of the brands evaluated in the respective markets.
The analyzed qualitative variables are:
- Relative share of the brand in its segment compared to competitors;
- Evolutionary behavior of the brand in its segment;
- Strength, position and relationship of the brand with its users;
- The relative image of the brand and its service provided;
- Brand lifetime since inception;
- Events and launches of new services with the same brand;
- Volume of resources invested in marketing and branding (marketing).
In the brand evaluation works, we use all the qualitative information that is available and the ones that can be obtained or collected.
- b) quantitative variables – which involves the use of valuation models dealing with economic-financial, retrospective and projective variables. We determinate an economic value for the brand, according to each methodology employed in the evaluation.
Peduti Advogados, through its consultant, Mário Sergio Cardim Neto, is currently using 3 brand evaluation models:
Relief from royalties
Marginal contribution of brand to company value.
Mario Sergio Cardim Neto
Peduti Advogados Consultant