Here's how Interbrand puts a number on the power of a name
Interbrand takes many ingredients into account when ranking the value of the Best Global Brands. Even to qualify for the list, each brand must derive at least a third of its earnings outside its home country, be recognizable beyond its base of customers, and have publicly available marketing and financial data. Those criteria eliminate most telecom companies, heavyweights such as Wal-Mart (WMT) that sometimes operates under different brand names internationally, and privately held companies like Mars.
Interbrand only ranks the strength of individual brand names, not portfolios of brands, which is why Procter & Gamble (PG) doesn't show up. Airlines are not ranked because it's too hard to separate their brands' impact on sales from factors such as routes and schedules. Pharmaceutical brands don't appear because consumers typically relate to the product rather than the corporate brand. Insurance companies, on the other hand, were added last year because they have begun to differentiate themselves and create household names.
BusinessWeek chose Interbrand's methodology because it evaluates brand value in the same way other corporate assets are valued—on the basis of how much it is likely to earn for the company in the future. Interbrand uses a combination of analysts' projections, company financial documents, and its own qualitative and quantitative analysis to arrive at a net present value of those earnings. The brand values are based on data collected during the 12 months prior to June 30, 2008. (So more recent developments, including the troubles at Merrill Lynch (MER) and AIG (AIG), are not factored into the brand valuations but are included in the descriptions of each brand.)
Step One is calculating how much of a company's total sales falls under a particular brand. In some cases, the brand encompasses nearly all sales, as with McDonald's (MCD). In others it is tied to only one set of products: Louis Vuitton within LVMH Group (LVMH.PA). Using reports from analysts at JPMorgan Chase (JPM), Citigroup (C), and Morgan Stanley (MS), Interbrand projects five years of sales and earnings tied to each brand's products and services.
Step Two is calculating how much of those earnings results from the power of the brand. Interbrand strips out operating costs, taxes, and charges for the capital employed to arrive at the earnings attributable to intangible assets. Interbrand then estimates the brand's effect on earnings relative to other intangible assets such as patents and management strength.
Finally, those future earnings are discounted to arrive at a net present value. Interbrand discounts against current interest rates and also against the brand's overall risk profile to factor in brand strength. Factors include market leadership, stability, and global reach—or the ability to cross both geographic and cultural borders. The final result values the brand as a financial asset. BusinessWeek and Interbrand believe this figure comes closest to representing a brand's true economic worth.
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