Can you please explain the market approach to valuation as it relates to valuing a tradename?
In the Market Approach, value is inferred from analysis of comparable properties that are for sale (have sold) in the marketplace. For example, if it is common practice in the industry in which a tradename is used to license the tradename, then licensing agreements in the industry provide a good source of comparable data from which to estimate the market value of the subject tradename. The factor on which we focus is the range of royalty rates and/or profit splitting arrangements on licensed tradenames. From this information, a royalty rate and/or profit split percentage can be applied to the valued tradenames expected future income via an income approach. Trademarks appraised to comply with FASB statement 141 and SFAS 142 are often valued utilizing comparable market data and an income approach.
