This is still another totally useless account. Why? Because it
is just an accounting gimmick – nothing more (BAAP again). Goodwill is born
after an M&A transaction in which
one company acquires another, but pays more than the book value of the net
assets of the latter (total assets - total liabilities). The difference between
actual purchase price and this book value is goodwill.
Why BAAP? Because goodwill is not an asset in an economic sense. Unlike any other asset on your
balance sheet, it does not generate financial
value. It just ‘sits’ there – on your balance sheet. Doing nothing. It is not
even amortized.
And it definitely has nothing to do with the intrinsic value
of your company. Which is determined by your free cash flows and your WACC. None
of which is influenced by your goodwill in any way.
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