Then you most likely flunked. Book values are reevaluated at the time of an acquisition. Goodwill is used for intangibles associated with things like name recognition and the purchase of customer trust in that name.
HA HA HA. 95 or higher in all my accounting classes. I will admit that I took no class that directly concentrated on corporate acquisitions, that these classes were part of a Business Administration minor (my major was Computer Science), and that I took those classes in the early 80's so accounting standards may have changed.
Goodwill is anything paid in excess of the book value of a company. In a high-tech company the value of intellectual capital is not accounted for in book value and therefore gets dumped into the goodwill bucket. It is one of the intangibles that you say belongs in goodwill.
Regardless of any re-evaluation of book value, it still only reflects the tangible asset value of a company and has no relation to the return that can be generated on those assets by a going concern. In your eyes, two companies with book values of $100,000,000 are both worth $100,000,000, even though one makes $10,000,000 per year and the other loses $10,000,000.
Which company would you prefer to own, one that can generate over 30% return on equity or one that has almost -7% ROE? |
