Summit uses a variety of accepted valuation techniques in its every day work. Below, we’ve outlined some of the most common approaches to valuation:
The income approach involves estimating either the future cash flows of the technology over the life of the patent or the royalty payments that the company will avoid by possessing the technology. With either approach, it is necessary to calculate the present value of the future cash inflows (or avoided cash outflows). An appropriate discount rate based on the risk of the technology is used in the present value calculation. When following the income approach, It is important that any assumptions concerning future cash flows are realistic and supported by relevant financial documents.
The cost approach involves determining either the cost to reproduce the same technology or to create a similar technology that would perform the same function. When following the cost approach, it is important to consider direct and indirect costs for the development effort, as well as the opportunity cost associated with pursuing the technology. The cost approach is easiest to use for technology that has clearly documented development costs.
The market approach estimates the value of the technology by evaluating the purchase prices of similar technology. This approach can be difficult to follow because there may not be similar technology with a publicly available purchase price.
Every valuation presents unique challenges. Therefore, there is not a preferred method that is appropriate for all cases. In some instances, it can be helpful to apply multiple valuation methods to calculate the value of the technology.
For more information on the approach that would be most appropriate for your innovation, please contact us.