Company appraisals can be undertaken at many times – primarily when there are changes to the shareholders. It is also advisable for companies to undertake periodic appraisals in order to analyse changes in the real value of the company’s tangible and intangible assets.
International valuation standards define an intangible asset as a “non-cash asset which is shown by its financial value. It does not have a physical appearance, but it gives financial rights and benefits to its holder”. It is therefore an asset which is liable to be separated or divided from the business entity and sold, transferred, exploited, leased or exchanged individually, or with an asset, liability or related contract. Non-identifiable intangible assets which arise from contractual or legal rights and which may or may not be divided from the entity, or from other rights and other obligations, are generally referred to as “goodwill.”
Goodwill is an important intangible asset, and is defined as: “any future economic benefit resulting from a business, an inherent interest in a business or the use of an asset group where division is not admissible.”
Examples of goodwill include economies of scale which would not otherwise be reflected in the values of other assets; growth opportunities, such as incursion into other markets; and organisational capital, such as profits obtained through an established network.
However, there are also other cases where it may be useful to perform a company appraisal:
