Beyond the balance sheet: Platinum brands

To some, BMW seemed a bit out of touch with hard times when it rolled out an exuberant ad campaign called "Joy" this year. Turns out, the ad campaign is in tune with the opportunities BMW and other luxury brand makers anticipate as the recession fades.

Last year was the worst year ever for global luxury goods, with worldwide sales falling 8%. But in a look at the world's most valuable luxury brands, Forbes identifies 10 that are poised to thrive in better economic times. These brands, including BMW and Louis Vuitton, share some qualities that help keep them strong even when wealthy consumers are curtailing spending.

The companies behind these brands emphasise their products' quality, longevity and pleasure-giving features through marketing efforts that make it likely these brands will continue to do well, especially if luxury sales around the world grow by 4% to $210 billion this year, as predicted by Bain & Co., the Boston-based consulting firm.

Forbes' Beyond the Balance Sheet department looks at the numbers behind the numbers--or ways of analysing companies that are different from the usual metrics, such as book value and earnings. To identify the Platinum Brands among luxury goods, we looked at more than 30 leading brands in autos, retail, fashion and accessories to determine the world's most valuable. We leaned on Jeffrey Parkhurst, managing director of business strategy at WPP-owned media agency Mindshare, to help value these brands.

In Pictures: Platinum Brands

In Pictures: Trusted-To-Busted Brands

In Pictures: World's Top Sports Brands

In Pictures: Big Celebrities Can Be Bad For Brands

The World's Most Tech-Friendly Countries

The first step was to determine earnings before interest and taxes for each brand. Forbes averaged those earnings over the past three years and subtracted from earnings a charge of 8% of the brand's capital employed, figuring a generic brand should be able to earn at least 8% on the capital employed.

Forbes applied the maximum corporate tax rate to that net earnings figure. Next, it allocated a percentage of those earnings to the brand based on the role that brands play in that industry. Brands are crucial when it comes to apparel and perfumes, but not so much, say, with airlines. Pricing and location are more important for them. To this net brand earning number, we applied the average price-to-earnings multiple over the past three years to arrive at the final brand value. For privately held outfits we applied an earnings multiple for a comparable company.

Image: BMW

Text and images: Copyright Forbes.com Any unauthorised reproducton is prohibited.