Goodwill
The premium a company paid over the fair value of what it bought.
If a company pays £1bn for a business whose identifiable net assets are worth £600m, the remaining £400m is booked as goodwill. It represents brand, relationships, staff, and, frequently, overpayment.
Goodwill is not depreciated. It sits on the balance sheet until the company admits the acquisition was worth less than it paid, at which point it is impaired in one brutal, headline-grabbing charge.
How the three statements lock together
Profit flows from the income statement into the balance sheet as retained earnings, and the cash flow statement reconciles what was earned with what actually arrived.
A balance sheet dominated by goodwill is a record of expensive shopping, and a latent risk to the equity.
Treating goodwill as a real asset. You cannot sell it, and it may evaporate in a single announcement.
Related terms
See Goodwill on a real company
SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.
Open SteadyShares