Financial Glossary: Goodwill


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Goodwill

Goodwill

An account that can be found in the assets portion of a company's Balance Sheet.

Goodwill can often arise when one company is purchased by another company. In an Acquisition, the amount paid for the company over Book Value usually accounts for the target firm's intangible assets.

Goodwill is seen as an intangible asset on the Balance Sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong Brand name, good customer relations, good employee relations and any patents or proprietary technology. The market sets the price of what a business is worth. In mergers and acquisitions, goodwill arises when more was paid for the business than you'd expect from just looking at the value of its assets and liabilities. This difference can have a number of reasons, including a happy workforce, customer loyalty, a good location, and so on.

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