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

CA Pramod Jain

8 Dec 202205:21

Summary

TLDRThe 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.

Outlines

00:00

😀 Understanding the Royalty Method for Brand Valuation

The first paragraph discusses the concept of valuing a company using the royalty method. It mentions a company that uses a license and rights to determine the hypothetical royalty rate based on brand value. The company in question is 'Kaka Halvai Chitle' and 'Joshi Bhale', which are brands in Pune. The paragraph explains the process of valuing the brand by considering the hypothetical royalty percentage, which is calculated based on research and assessment. It also touches on the importance of understanding the brand's turnover and how to calculate the royalty amount from sales.

05:02

😀 Valuation of Kaka Halvai and Joshi Bhale Brands in Pune

The second paragraph continues the discussion on brand valuation, specifically focusing on the 'Kaka Halvai' and 'Joshi Bhale' brands existing in Pune. It emphasizes the need to evaluate the entry value of these brands based on their business data. The summary suggests that the brands are being assessed for their market presence and potential value, although the exact details of the valuation process or the brands' current status are not provided in the script.

Mindmap

Keywords

💡Royalty Method

The 'Royalty Method' is a valuation technique used to determine the value of an intangible asset or a business by estimating the economic benefits that the asset or business is expected to generate. In the context of the video, it seems to be discussing the valuation of a brand using this method, where the brand's value is determined based on the royalties it would hypothetically pay if it were licensed to another party.

💡Brand Name

A 'Brand Name' is the title or designation of a particular brand of goods or services. It is a critical component of branding and marketing strategies. In the video, the brand names 'Kaka Halwai' and 'Chitale Bandhu' are mentioned, indicating that the valuation discussion is centered around these specific brands.

💡Valuation

Valuation refers to the process of determining the economic value of an asset or a business. It is a key concept in finance and business, and in the video, it is used to discuss how to determine the value of the mentioned brands, presumably for financial or transactional purposes.

💡Turnover

In business, 'Turnover' typically refers to the total sales revenue for a business over a particular period. The script mentions finding 5% of the turnover, which suggests that the royalty rate being discussed is a percentage of the sales revenue generated by the brands.

💡Cash Flow

'Cash Flow' is the net amount of cash and cash equivalents being transferred into and out of a business. The script discusses the cash flow saved on account of owning the brand and how to calculate the present value of these cash flows, which is crucial for valuation purposes.

💡Discount Rate

A 'Discount Rate' is the interest rate used to determine the present value of future cash flows. In the video, it is implied that the cash flows generated by the brands will be discounted back to their present value to estimate the current worth of the brands.

💡Hypothetical Third Party

A 'Hypothetical Third Party' refers to an imaginary entity that is used for the purpose of analysis or comparison. In the script, it is mentioned in the context of a third party that hypothetically would pay royalties for the use of the brand names.

💡Royalty Rate

The 'Royalty Rate' is the percentage of sales revenue that is paid to the owner of a property or intellectual property for its use. The script discusses determining the royalty rate that would be paid if the brands were licensed out, which is a critical factor in their valuation.

💡Present Value

'Present Value' is the concept of calculating the current worth of a future sum of money or cash flow given a specified rate of return. The script mentions finding the present value of all the cash flows over the expected life of the brand to determine its valuation.

💡Brand Value

The 'Brand Value' is the total worth of a brand, often calculated by considering its financial performance, brand strength, and potential future earnings. The script's main theme revolves around determining the brand value of 'Kaka Halwai' and 'Chitale Bandhu' using the royalty method.

💡Pune

Pune is a city in India and is mentioned in the script as the location where the brands exist and operate. This geographical context is important as it may influence the valuation by affecting factors such as market size, competition, and consumer behavior.

Highlights

Relief from royalty method and its implications for a company.

Company using a license and the rights involved in valuation.

The concept of determining the value of a company using the royalty method.

Introduction of Kaka Halwai Chitale and Joshi, a company in Pune.

Brand name associated with Kaka Halwai Chitale and its significance.

The importance of brand valuation for Kaka Halwai and Chitale Joshi.

The process of brand valuation and its impact on business operations.

Hypothetical scenario of a third party using the brand name.

Understanding the royalty based on research and assessment.

Calculation of a 5% royalty based on business turnover.

The need for Kaka Halwai, Chitale, and Joshi to determine their brand's value.

The method to find out the 5% of the turnover generated today.

Estimating the brand's value based on the saved cash flow from sales.

Understanding the present value of all cash flows over the expected life of the brand.

The total brand value of Kaka Halwai, Chitale, and Joshi's brand.

The concept of royalty-free brand valuation and its importance.

The hypothetical amount of royalty that would be payable to another party.

The brand's value based on the hypothetical royalty amount.

The business existence of Kaka Halwai, Chitale, and Joshi in Pune.