Brand name of a product has certain value to a company. How do we value a brand and how does it affect the fair value of a common stock? There is no definite way of doing it since a brand is worth more to some than to other people.
Brand is valued in the balance sheet under ‘Intangible Assets’ or ‘Goodwill’.. Each company values their brand differently but they all agree that brand name has certain value.
What is the best way to value a brand? Nobody knows for sure. One can only give his reasoning and then value the brand accordingly. Here, I will explore the possibility of valuing a brand based on asset value and based on the value of the common stock.
Let’s use a familiar brand name. Coca Cola Company (KO) has one of the most valuable brand in the world under the Coke brand name. How much is it worth? We can go to any grocery stores to verify. Grab a bottle of Coke and a bottle of generic cola. What is the price difference? We can argue that the price difference is due to the Coke brand name. Let’s assume a price difference of 10 cents. Let’s assume that Coke sold 1 Billion bottles of Cokes each year. This implies...
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