2 min read
Definition
Goodwill arises when a business is bought for more than the fair value of its identifiable net assets. The excess is recorded as an intangible asset representing reputation, customer relationships and workforce.
In plain terms
It is the "why the business is worth more than the sum of its bits" figure. You cannot touch it, but it is real value — until it is not, when it gets impaired.
Why it matters for your company
Large goodwill balances make net assets look big but can be written down sharply if the acquisition underperforms. Lenders often discount goodwill when assessing tangible net worth. See intangible asset.
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Tangible asset
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