Reading the accounts
Goodwill
The premium paid over the fair value of a business’s identifiable assets when acquiring it.
How it works
Goodwill arises only through acquisition. It represents whatever the acquirer paid for beyond the measurable assets — brand, workforce, expected synergies.
It is not depreciated but is tested annually for impairment. A large impairment is a formal admission that an acquisition did not deliver.
Where it misleads people
Goodwill approaching or exceeding total shareholders’ equity means the balance sheet rests on the judgement that past acquisitions are still worth what was paid. That judgement can reverse quickly.
Related terms
- Tangible book valueBook value with goodwill and other intangibles removed.
- Intangible assetsNon-physical assets with value: patents, trademarks, software, licences and customer relationships.
- WritedownReducing the recorded value of an asset when it is no longer worth what the books say.
- Merger and acquisitionOne company buying another, for cash, shares, or a combination.
Mentioned in
More in Reading the accounts
- Gross margin
- Going concern
- Income statement
- GAAP and IFRS
- Free cash flow
- Interest coverage
- Fixed costs
- Inventory
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.