Intellectual property (IP) is a wide term that refers to a company's collection of intangible assets that are legally protected against unauthorized use or application.
A non-physical asset that a firm holds is known as an intangible asset. IP assets can be independently identified, they are transferrable and have an economic lifespan. Some types of IP such as patents, copyrights, industry knowledge, and trade secrets are considered capital assets and may be recorded on a company's balance sheet, and because there are no defined accounting procedures for valuing each asset, other forms of intellectual property cannot be classified as assets on the balance sheet.
However, because market players are aware of the intellectual property’s existence, the value of the property tends to be reflected in the stock price.
The value of an IP asset represents the potential future economic benefits to the IP owner or authorized user and essentially comes from the right the owner of that asset has to exclude competitors from using it. Therefore, Value can be derived through:
• Direct exploitation of the IP by incorporating it into the product;
• sale or licensing of the IP to a third party;
• other means, such as raising barriers to entry or reducing the threat of substitutes in the market. Read more