Accounting
What is Goodwill?
Goodwill is the premium a company pays above the fair value of net assets when acquiring another business, it sits on the balance sheet as an intangible asset.
Formula
Goodwill = Acquisition Price - Fair Market Value of Net Identifiable Assets
How to Interpret
Large goodwill on the balance sheet means the company has paid a premium for acquisitions. If the acquired business underperforms, goodwill gets written down (impaired), hitting profits.
Typical Ranges
Goodwill > 30% of total assets is a risk flag. Watch for impairment charges in quarterly results.