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Intangible Asset

Definition - What does Intangible Asset mean?

An intangible asset is that which is not physical or tangible by nature. Examples of intangible assets include customer relationships, intellectual property, goodwill and brand awareness. Additionally, intangible assets can be either infinite or definite. For instance, a firm's brand image is infinite because there is no limit for how long it can be an asset. Conversely, a patent would be definite because it is only an intangible asset for the length of patent protection.

A firm will be valued higher if it's intangible assets are considered to be transferable. These intangible assets are considered crucial to generating future cash flow in acquisitions and in some cases, intangible assets experience the same level of importance in analysis as tangible assets.

Divestopedia explains Intangible Asset

The level of intangible assets will impact the valuation that a buyer places on a business. The more intangible assets in a business, the higher the potential risk because intangible assets cannot be specifically liquidated if the company becomes insolvent.

Different types of businesses innately have different amounts of intangible assets. For instance, a technology firm will have a considerable amount of intangible assets by nature, while a manufacturing company may not. Prior to determining a target company's sale price, both seller and buyer should evaluate reasonable levels of intangible assets for firms in a certain industry. When possible, it is also very important to demonstrate how intangible assets impact a business and if this impact can be transferred to future owners. Overall, in order to maximize firm value, analysis must be made to illustrate the effects of intangible assets.

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