Picking the Winners Methodology

How does Interbrand compute a value for the brands that appear in BusinessWeek's Best Global Brands ranking? A brand must derive at least a third of its earnings from outside its home country, be recognizable beyond its base of customers, and have publicly available marketing and financial data. Those criteria eliminate most telecoms, heavyweights such as Wal-Mart (WMT), which sometimes operates under different brand names internationally, and private companies.

Interbrand ranks only 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.

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 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, 2009.

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. Using analysts' reports, 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 derives from the power of the brand. Interbrand strips out operating costs, taxes, and charges for the capital employed to arrive at 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 value. Interbrand discounts against interest rates and also against the brand's overall risk profile to factor in brand strength. Ingredients include market leadership, stability, and global reach—or the ability to cross 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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