Difference between Quantitative and qualitative methods of the intellectual property valuation

 Quantitative Methods:

Approach to the Market:

The market method uses paid prices as a barometer of an asset's worth. The basic premise is that supply and demand in competitive markets lead to equilibrium under specific conditions. The direct market value technique and the analogy method are used in this intellectual property valuation strategy. The direct market value technique aims to use the subject asset's directly regarded transaction amounts.

This method requires an active marketplace for good, which means that the operating assets must be the same, willing buyers and distributors can be found at any time, and prices must be widely known. In contrast, the analogy method requires appraisers to look for transactions with comparable assets and apply the paid prices to the valuation object.

Cost Approach:

The cost approach aims to ration the value of a product by calculating the cost of replacing the asset with another. The primary premise of this method is that the cost of constructing or purchasing additional assets is equivalent to the value of ownership. This method consists mainly of the reproduction cost and replacement cost approaches.

The reproduction cost approach estimates the cost of manufacturing or acquiring a good with a corresponding benefit. In contrast, the replacement cost method estimates the cost of manufacturing or acquiring a good with a corresponding benefit. This implies the item must have the same efficacy, but the manner and look may be completely different. Due to the one-of-a-kind nature of intellectual property, a replica is usually impossible to create.

Income Approach:

Various techniques may be identified within the income approach based on how the income flow is determined: Direct Cash Flow Method, Relief from Royalty Method, Multi-period Excess Earnings Method, and Incremental Cash Flow Method.

The direct cash flow approach is based on cash flows directly traceable to the asset in question. One need is that the cash flows may be directly measured. This is especially true if the technology is licensed to third parties rather than employed in the owner's manufacturing operations. In the value calculation, the licensing payments can be employed directly as cash flows.

 

Qualitative Methods:

Rating:

Several approaches may be used to arrive at a definite score in terms of Intellectual Property valuation. Most techniques assess the asset's strategy, technical progress, and brand strength, as well as the dangers and possibilities it offers. The grading system may also classify IP assets, as in the Prism approach, establishing the sort of role IP plays in the business and then assigning a strategy based on that conclusion.

Method using value indicators:

It includes rating systems such as IP Quotient (IPQ), which primarily evaluates patents based on portfolio strength and patent-related factors. Internal comparisons based on indications are therefore possible.

Competitive advantage Method:

It compares intellectual property valuation to other non-branded firms in the market to determine the competitive advantage. It assesses intellectual property based on a variety of factors to identify the brand's performance and strength.

Qualitative techniques are frequently employed for internal and strategic reasons due to their primarily non-monetary character. They may be used to determine the profitability of an IP portfolio, assess possibilities and risks, and build a comprehensive business plan. Qualitative methods are frequently based on common-sense indications, making them suitable for non-expert audiences and those who lack a solid financial understanding of the sophisticated quantitative measurements that generate value metrics.