Goodwill
AccountingThe premium paid over fair value of net assets in an acquisition, carried on the balance sheet.
In plain terms
A standing candidate for future write-offs. Treat large goodwill with scepticism.
1492 terms
Glossary
Every term is defined twice: once the way a filing would put it, and once the way somebody would explain it to you across a table. The second one is usually the one that sticks.
Showing 10 terms
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Assets
AccountingEverything a company owns or is owed — cash, receivables, inventory, fixed assets, goodwill and investments.
In plain terms
One half of an identity that always balances, because every rupee of asset was funded either by a lender or by an owner.
Impairment
AccountingA write-down of a long-lived asset or goodwill.
In plain terms
A large one in a new CEO’s first year usually means assets were overstated before.
Return on tangible capital
Fundamental analysisReturn on capital excluding goodwill and intangibles.
In plain terms
A legitimate operating measure that flatters serial acquirers. A management team preferring it is telling you something.
Tangible book value
AccountingBook value with goodwill and intangible assets removed.
In plain terms
The conservative floor. Goodwill is the premium paid in past acquisitions, and it goes if those disappoint.
Acquisitions
Fundamental analysisBuying another business — one of the ways management can deploy the cash a company generates.
In plain terms
Most destroy value. Check the price paid, how it was funded, the goodwill created, and what happened to the last five before judging the sixth.
Amortisation
AccountingSpreading the cost of an intangible asset across its useful life.
In plain terms
The intangible equivalent of depreciation. Goodwill is the exception — it is not amortised.
Dividend
Market basicsCash a company distributes to shareholders out of its profits, received by whoever owns the share before the ex-date.
In plain terms
Sustainable only when covered by free cash flow — a company borrowing to maintain its dividend is buying goodwill with someone else's money. It is now taxed in your hands at your slab rate.
Intangible asset
AccountingA non-physical asset such as a brand, patent, licence or software.
In plain terms
Amortised over a useful life, unlike goodwill, and sometimes saleable on its own.
Pooling of interests
AccountingAlso called: Pooling of interests method
The method used for a common-control combination: assets and liabilities carried across at existing book values, with the difference taken to a capital reserve.
In plain terms
No goodwill arises, which is the fingerprint. A capital reserve moving instead of goodwill appearing tells you a group reshuffle happened rather than a purchase.