How to quantitatively value brands

[premfan]

Buying companies on the cheap that have strong brands is the holy grail in investing. Buffet states during inflation brands are your friends and asset heavy businesses are the enemy. Knowing that strong brands can :

 

1.) increase prices in a stealth way to the consumers without much drop in volume

 

I'm looking for ways to quantitatively value a brands strength. This is what I have so far:

 

1.) net income/net tangible asset

2.) If retained earnings higher than equity we are dealing with a strong brand

 

 

Using IBM vs Coke as examples:

 

In 2012 IBM has a net income of 16.6 billion/ net tangible asset of 14 billion.  Giving it a ratio of 118 percent. This means for every dollar worth of tangible asset it makes 1.18 dollars off of it. This is amazing.

 

2012 Coke net income 9.1/ net tangible asset of 14.5 billion.  Ratio of 62.7 percent. Coke makes 62.7 cents off of each dollar in tangible asset. Very good.

 

Using this quantitative measure ibm has a stronger brand than coke. An observation I have noticed is most tech companies are asset light and have strong brands. The issue is its impossible to know if its durable. So you have to factor that in measuring relative brand strength. Do you guys have any other ways to quantitatively measure brand strength?

[Hielko]

An asset light business does not imply a strong brand imo. I do think you need to look at return on tangible equity within the same industry. Market share stability and historical margins are probably also good indicators of how strong a brand is.

[Guest wellmont]

buffett liked to use ebita/inv+net fixed assets.

[jay21]

Compare margins from companies in the same industry.