Interbrand's Brand valuation Assumes that brand value is the present worth of the benefits of future ownership Brand value calculation: Calculate the brand value as the net present value(NPV of the forecast brand earnings, discounted by the brand discount rate Interbrand(2004), Brand Valuation: A Chapter from "Brands and Branding An Economist Book, April O Copy rights reserved, Zou Deqiang
16 16 © Copy rights reserved, Zou Deqiang Interbrand’s Brand Valuation • Assumes that brand value is the present worth of the benefits of future ownership • Brand value calculation : Calculate the brand value as the net present value (NPV) of the forecast brand earnings, discounted by the brand discount rate Interbrand (2004), Brand Valuation: A Chapter from “Brands and Branding” An Economist Book, April. Interbrand (2004), Brand Valuation: A Chapter from “Brands and Branding” An Economist Book, April
4 Key Components of Brand Valuation Brand valuation Non-branded -+1. Total Cash Flows/Earnings e accurate, as it includes all costs(e. g CAPEX, working capital Earnings data more accessible, and tie more closely to 2. Brand Contribution outed by the brand Derived from hat an hp branded offe 3. Discount Rate Weighted average cost of capital based on HP's current 2002200320042005200620072008 apital structure -----+4. Time Period
17 4 Key Components of Brand Valuation
Basic Processes The process of valuing the expected profits of the brand can be divided into three independent stages The first step involves separating and isolating the net income associated with the brand (and not with the company for example) The second step is to estimate the future cash flows This requires a strategic analysis of the brand in its market or markets The third step involves choosing, by using a classic financial method, a discount rate and period O Copy rights reserved, Zou Deqiang
18 18 © Copy rights reserved, Zou Deqiang Basic Processes • The process of valuing the expected profits of the brand can be divided into three independent stages: ¾The first step involves separating and isolating the net income associated with the brand (and not with the company for example). ¾The second step is to estimate the future cash flows. This requires a strategic analysis of the brand in its market or markets. ¾The third step involves choosing, by using a classic financial method, a discount rate and period
The General Model for brand valuation 1. Financial forecasts 2. BVA-the brand's 3 Risks contribution to attached to demand future earnings Financial Market Demand data data drivers Factors Brand Forecasts Economic value Added Brand value Added bva BrandBeta Brand value Added Discount Brand value 4. Valuation and sensitivity analysis Haigh, David(1999), Understanding the Financial value of Brands, Brand Finance plc
19 The General Model for Brand Valuation Discount rate ßrandßeta ® Analysis Risk Factors 3. Risks attached to future earnings Brand Forecasts Economic Value Added Brand Value Added Market data Financial data 1. Financial forecasts Brand value 4. Valuation and sensitivity analysis 2. BVA - the brand’s contribution to demand Brand Value Added BVA ® Index Demand drivers Haigh, David (1999), Understanding the Financial Value of Brands, Brand Finance plc. Haigh, David (1999), Understanding the Financial Value of Brands, Brand Finance plc
Step -Branded Business Value egmont B Overall market and risk analysis Segment C evenue Financial Forecasts analysis Segment A Segment Earnings analysis → Segment B SEgment C Branded Business Value Discount Rate O Copy rights reserved, Zou Deqiang
20 20 © Copy rights reserved, Zou Deqiang Segment analysis Segment A Segment B Segment C Earnings ‘Branded Business’ Value Forecasts revenue costs Overall market and risk analysis Financial analysis 3 1 2 Segment A Segment B Segment C Discount Rate 4 Step I - Branded Business Value