Experts agree that valuation results from an opinion-making process. Likewise, there is no disagreement about the general definition of value as a summary judgment of the future financial benefits of owning or using the item being valued, taking into account risk. Value is inherently subjective as an opinion given by a specific entity.
Price or cost is a current or future market fact that has a strong causal link to supply and demand. It is also the outcome of a decision whose connection to value is hard to determine, mainly because many factors are involved in the buyer’s or user’s decision-making process.
The informative role of transaction prices later becomes a valuable resource for valuation. However, when valuing intangible assets, comparing prices presents special challenges because of the unique features of inventions, brands, and other items protected by industrial property law and copyright.
The common belief is that prices determined by market transactions should reflect value, according to the market value standard, but this idea doesn’t hold in practice. Even with liquid capital instruments, such as shares of publicly traded companies, the price usually differs from the intrinsic value, which, in turn, varies widely across experts.
For many years, experts have sought to standardize valuation methods, aiming to reduce variability in results by establishing a standard methodological reference. The International Valuation Standards Council (IVSC) has expanded its global influence in this effort, thereby advancing valuation standardization.
In intangible asset valuation, the reliable use of transaction prices requires access to commercial databases; however, these data are limited and incomplete due to the confidential nature of transactions.
