In our previous post “The Rise of the Intangibles”, we explored how knowledge-based assets like intellectual property (IP), brand equity, and proprietary technology are reshaping the economy. Businesses that once relied on physical goods and real estate now derive most of their value from ideas, algorithms, and relationships. However, while the economic significance of intangibles is undeniable, their valuation remains one of the more complex and debated topics in modern business.
There are some very real numbers to support the growing valuation of intangible assets. Take the Marvel Cinematic Universe (MCU) as an example. When Disney acquired Marvel Entertainment in 2009 for $4 billion USD, some analysts questioned the price tag. But over the ensuing decade and a half, the MCU has gone on to generate 7.5 times that amount, earning over $30 billion in global box office revenue—without even counting merchandise, streaming, and theme park integrations. Not a bad return on investment. (Side note: Marvel is a fascinating case study in IP rights and creative assets. The World Intellectual Property Organization (WIPO) has many excellent articles exploring its complex IP history. Readers might want to start with this one: Marvel’s Superhero Licensing).
However, this case study highlights a critical issue in valuation: What happens when there is no transaction to set a definitive value for an intangible asset? How do businesses and investors determine the worth of a patent portfolio, a proprietary algorithm, or a globally recognized brand? In these cases, more intricate accounting measures are needed.
But even then, accountants are not infallible. In an opinion piece for The Globe & Mail, Patricia Meredith and Barbara Stymiest—two leading figures in Canadian accounting and corporate governance—argue that while formal accounting standards like IFRS 38 exist to quantify intangible asset value, outdated mindsets often lead to accountants grossly understating IP assets. They acknowledge the growing value of IP in the global economy, yet they also emphasize that, at least in Canada, we are not fully accounting for its true worth.
The Canadian IP Deficit
The US Patent and Trademark Office (USPTO) reported in its 2016 Annual Update that IP-intensive industries accounted for 38.2% of the US GDP in 2014. The European Union Intellectual Property Office (EUIPO) found a similar proportion, with IP-driven industries contributing 39% of the EU’s GDP.
Yet, in Canada, the numbers tell a different story. According to the 2015-2016 Annual Report from the Canadian Intellectual Property Office (CIPO), IP-intensive industries accounted for only 25.1% of the Canadian economy in 2016.
Contribution of IP-Intensive Industries to GDP
What’s causing that deficit? It can’t simply be the accountants, can it?
While accounting methods and mindsets likely play a role in this gap, other factors undoubtedly also contribute:
Lower IP commercialization rates in Canada, despite its world-class research institutions, suggest that innovations are not translating into economic output as efficiently as they do in the U.S. or EU. Canada’s economy also remains more reliant on resource-based industries compared to the highly IP-driven sectors dominating other advanced economies. Furthermore, lower private-sector investment in research and development (R&D) means fewer patents and proprietary technologies are being developed within Canadian firms, impacting the overall weight of IP-driven economic activity.
This gap in IP-driven economic output underscores the need for businesses and policymakers to take intangibles more seriously—not just in financial reporting, but as a core economic strategy.
How Businesses Value Intangible Assets
Valuing intangible assets is not straightforward, as they often lack clear market comparables. Instead, businesses rely on three primary approaches: cost-based, market-based, and income-based valuations. Each method has strengths and weaknesses depending on the type of asset, industry, and available data.
A cost-based approach determines an asset’s worth based on the investment required to create or replace it. This includes expenses such as R&D costs, branding, and software development. While this approach is easy to verify and useful for tracking internal innovation, it has a significant limitation—it does not account for an asset’s potential to generate future revenue. A pharmaceutical company may spend $50 million developing a new drug, but if that drug generates billions in sales, the cost-based approach severely underestimates its true value.
Alternatively, a market-based approach looks at comparable transactions in the marketplace to estimate value. This method works well in industries where patents, trademarks, or brand assets are actively bought and sold, such as entertainment, pharmaceuticals, and technology. For example, when Disney considered acquiring Marvel, it likely examined past acquisitions of similar content franchises to inform its valuation. However, not all intangible assets have a clear market comparison, making this method difficult to apply universally. Moreover, many IP transactions are private, meaning businesses lack access to accurate market data.
The income-based approach takes a forward-looking perspective, valuing intangibles based on the future revenue they are expected to generate. This is the most widely used method in mergers, acquisitions, and IP valuations, as it directly ties an asset’s worth to its economic contribution. A software company developing an AI-powered analytics platform, for instance, might estimate the future subscription revenue from its technology over the next decade, discounting it to present value. While this approach is powerful, it requires assumptions about market demand, discount rates, and long-term revenue projections, making it inherently uncertain.
Beyond the broad primary approach categories, there are several other methods that offer nuanced ways to value intangible assets. The Royalty Method estimates the value based on the hypothetical royalties that a company would have to pay if it licensed the asset from another entity, useful in industries with active licensing markets.
The Multiples Approach, often used in financial analysis, assigns value based on market multiples of similar companies or transactions, providing a quick comparative measure.
Option Pricing Models apply financial derivatives theory to value assets with uncertain future benefits, capturing the flexibility and risk associated with R&D and new technologies.
Lastly, the Multi-Period Excess EarningsMethod attributes future excess earnings to the intangible asset over multiple periods, commonly used in valuations involving customer relationships and brand equity.
Each of these methods caters to specific asset characteristics and industry contexts, offering valuable insights where traditional approaches may fall short, and more often than not, multiple methods are applied to give a better understanding of the value of the assets.
The Future of Business Valuation
As intangible assets continue to reshape global markets, Canada must do more to bridge the IP deficit. Business leaders and policymakers must move beyond traditional financial metrics to better understand, value, and leverage intangible assets. If the U.S. and EU have IP-intensive industries contributing close to 40% of GDP, while Canada lags behind at 25%, something is missing in our approach—whether it’s in our accounting practices, commercialization strategies, policy frameworks or a likely mixture of all of the above.
For businesses, the challenge is recognizing that intangible assets, though harder to quantify, often represent the most valuable component of their company’s worth. Whether it’s a billion-dollar movie franchise, a groundbreaking biotech patent, or an AI-powered SaaS platform, the companies that thrive in the coming decades will be those that fully understand, protect and capitalize on their intangible assets.
The Springboard Substack is a fact-based analysis platform focused on Intellectual Property and productivity in Canada. It is not intended to be a policy advocacy instrument.
