Royalties are a form of intangible assets (See Page 11 story for many others) that make use of intellectual property, be it the formula for a drug, a song that is played often in public, or a brand’s value.
Ever wondered how much Taylor Swift, 33, earns a month from her pre-recorded albums? According to the British press, it is GBP6.7 million ($11.2 million) a month. Entertainers like Swift earn money from royalties, which is the sum of money paid to a person or entity which holds a patent for the use of the patent.
Royalties are assets which take the form of agreements or licences that lay out the terms by which a third party can use assets that belong to someone else. The owner of the patent receives a cash flow for the period the patent is in effect. If patents are to be valued based on their cash flow, then future cash flows for the life of the patent are discounted with the use of a discount rate back to a net present value.
