December 8, 2015
A profit-split analysis for a trademark or other intangible assets attempts to quantify what share of the profit of a business is attributable to the subject asset.
In an article published in Les Nouvelles, Christof Binder and Anke Nestler discuss how to use purchase accounting data to achieve this. Basically, a purchase price allocation is an exercise to allocate all future profits of a business to its different assets. The value of an asset expressed as percent of enterprise value describes its share in the future profit stream of that business. Or – the ratio trademark value to enterprise value is another form of profit split of that particular trademark.
The results of purchase price allocations are widely available through their disclosures in financial statements of listed companies. The number of available data points allows robust and meaningful profit split analyses for all different kind of intangible assets. Such analyses can even directly correlate revenue related ratios (i.e. royalty rates) with profit related ratios (i.e. profit split) within the same data set.
Read the full article here.