Goodwill

What was paid above the target's net assets in an acquisition

In detail

Goodwill is the amount an acquirer paid above the acquired company's net assets. It stands for what is not on the books: brand, customer relationships, know-how. If the acquired business disappoints, the value is written down in one go and that period's profit falls sharply. The larger the goodwill, the larger that risk sitting on the balance sheet.

Example

Paying $100 million for a company with $60 million of net assets creates $40 million of goodwill.

Related terms

Balance sheet Net income Book value per share

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