Valuation of Intangible Assets using Relief From Royalty (RFR) Method I CA Pramod Jain

Summary

The video script discusses the concept of relief from royalty methods, explaining how a company can determine the value of using a licensed brand like 'Kaka Halwai'. It elaborates on the valuation process, suggesting a hypothetical royalty rate of 5% based on turnover data, and how to calculate the brand's value by assessing the present value of future cash flows. The script also touches on the importance of royalty as a determinant of brand value, especially when the brand is not owned but licensed for operations.

Takeaways

• 📜 The script discusses the concept of relief from royalty method and its implications for a company using a license and rights.
• 🏭 It mentions a specific company in Pune, possibly involved in the food industry, using the brand name 'Kaka Halwai', which seems to be a sweet shop or confectionery.
• 🔑 The brand 'Kaka Halwai Chitale' is associated with 'Bindhu Mithaivale' and 'Joshi Badi Wale', indicating a potential brand extension or franchise.
• 💡 The script talks about the valuation of the brand name and how it can be determined, suggesting a process of evaluation for the brand's worth.
• 🤔 It raises a hypothetical scenario where if the brand is not owned by the company and is licensed, the royalty percentage would need to be calculated.
• 💰 The script suggests a royalty fee of 5% based on turnover, which seems to be a common practice in licensing agreements.
• 📊 It explains that the royalty fee is calculated as a percentage of the sales or turnover generated by the brand, emphasizing the importance of sales figures.
• 🔍 The discussion includes finding out the amount of royalty by multiplying the sales by the royalty percentage, indicating a method to determine the financial impact of the brand.
• 📈 The script talks about the present value of future cash flows, suggesting a method to evaluate the brand's value over its expected life.
• 🏷 It concludes by emphasizing the brand value of 'Kaka Halwai', 'Chitale Bindhu Mithaivale', and 'Joshi Badi Wale', and how it is derived from the royalty payments.
• 📝 The final note is about the brand being free from royalty, meaning the company does not have to pay royalty anymore, and the brand value is equivalent to the royalty amount they were paying.

Q & A

What is the main topic discussed in the script?

The script discusses the concept of valuing a brand using the royalty method and the hypothetical royalty rate that might be applied to determine the brand's value.

What is the context of the brand mentioned in the script?

The brand mentioned in the script is associated with 'Kaka Halwai' and 'Chitale Bandhu', which are sweet shops in Pune, India.

What is the royalty method and how is it used in brand valuation?

The royalty method is a technique used to determine the value of a brand by estimating the royalty payments that would be made if the brand was licensed to a third party.

What is the hypothetical scenario presented in the script for brand valuation?

The script presents a hypothetical scenario where the brand owners would need to pay a royalty to a third party if they did not own the brand and had to license it for their operations.

What percentage of royalty is being discussed in the script?

The script discusses a royalty rate of 5% based on certain mathematical understanding, interaction, research, and assessment.

How is the 5% royalty rate applied to the brand valuation?

The 5% royalty rate is applied to the brand valuation by multiplying it with the sales or turnover generated by the brand to estimate the cash flow saved by owning the brand.

What is the significance of the 10:15 years mentioned in the script?

The 10:15 years mentioned in the script likely refers to the period over which the brand is expected to generate cash flows, which is then used to calculate the present value of those cash flows.

How does the script suggest finding the amount of royalty for the brand?

The script suggests finding the amount of royalty by determining 5% of the turnover or sales generated by the brand over the next 10 to 15 years.

What is the purpose of calculating the present value of cash flows in the script?

The purpose of calculating the present value of cash flows is to determine the brand's value by discounting future cash flows to their present value, considering the time value of money.

How does the script relate the royalty amount to the brand's value?

The script relates the royalty amount to the brand's value by suggesting that the brand's value is equivalent to the amount of royalty that would be saved or generated by owning the brand, rather than having to pay it to a third party.

What is the conclusion drawn about the brand valuation in the script?

The conclusion drawn in the script is that the brand valuation is the present value of the cash flows saved by not having to pay the hypothetical royalty, which is calculated to be 5% of the turnover or sales.