Dictionary / Financial statements
What Is Goodwill?
Goodwill is the extra amount a company pays when it buys another company for more than the value of its assets minus debts. It sits on the buyer's balance sheet.
A simple example
Company A buys Company B for $10 billion. B's assets minus its debts are worth $6 billion on paper. The extra $4 billion is goodwill. It stands for things like the brand, customers and staff that the buyer believes are worth paying for.
Goodwill write-downs
Each year the buyer checks if the bought business is still worth what it paid. If not, it writes goodwill down. This shows up as a big one-time loss and is a sign the acquisition did not go as planned.
What investors watch
Lots of goodwill means the company has grown by buying others. That is fine if the deals worked. Large write-downs suggest the company overpaid.
See it in real companies
Open a company to see what it sells and how it makes money.