Goodwill
Excess of the cost of an acquired company over the sum of the market values of its net assets (assets minus liabilities)
Goodwill is an intangible asset that is recorded on a company’s balance sheet. It represents the value of the reputation, brand, customer loyalty, and other intangible factors that contribute to a company’s business success.
Goodwill is created when one company acquires another for a price that is greater than the acquired company’s net assets. The excess paid for the business is attributed to the acquired company’s goodwill.
Goodwill is usually only recognized in situations where one company acquires another, as it is an amount paid in anticipation of future earnings. Goodwill cannot be created internally by a company or purchased for a price lower than the acquired company’s net assets.
Goodwill is not amortized but is subject to impairment testing to ensure the reported value accurately reflects its current value. An impairment loss would occur if the reported value of the goodwill exceeds its fair value.
Goodwill is an important metric for investors as it can be an indicator of a company’s competitive advantages and future growth potential.
More Answers:
Understand Gross Profit, Operating Expenses, and Net Profit in Business FinancesUnderstanding Gross Profit: A Key Metric for Financial Performance in Business
Understanding Gross Margin and its Importance for Measuring Company’s Profitability in Social Science