Goodwill refers to the potential economic value that can bring excess profits to enterprises in the future, or the capitalized value that the expected profitability of enterprises exceeds the normal profitability of identifiable assets. Goodwill is an integral part of the overall value of an enterprise. Where enterprises are merged under different control, the purchaser shall recognize the difference between the merger cost and the fair value share of the identifiable net assets of the acquiree obtained in the merger as goodwill.
The characteristics of goodwill include no physical form; It cannot exist alone and cannot be sold separately from other identifiable assets of the enterprise; Only the whole enterprise can confirm the value of goodwill. When reading the financial statements of listed companies, we must eliminate this goodwill subject and not count it as assets. In fact, goodwill is not a real asset, so we must be wary of listed companies with high ratio of goodwill to net assets.
"Ternary Theory" of Goodwill
1, Goodwill Value Theory
According to the theory of goodwill value, goodwill comes from the good image of the enterprise and the good feelings of customers, which may come from the superior geographical position, good reputation, favorable business position, good labor relations, exclusive privileges and good management of the enterprise.
Because these factors are invisible and intangible, the amount cannot be recorded in the accounts, so goodwill actually refers to the above intangible resources of enterprises, so the theory of goodwill value is also called intangible resources theory.
2. Excess return theory.
According to the theory of excess income, goodwill is the part where the present value of expected future income exceeds the normal income. The excess return here should mean that you can get a profit higher than the average profit level of the same industry for a long time. Goodwill is combined with the whole enterprise and cannot be identified separately, but once an enterprise owns it, it will have profitability and service potential beyond the normal profit level. Therefore, its value can only be concentrated through the excess income created by the whole.
3. Total valuation account theory.
Total valuation account theory, also known as surplus value theory. This view holds that goodwill is the total valuation account of an enterprise and the product of the concept of going concern value and unrecorded assets. The concept of going concern value holds that goodwill itself is not a separate interest-bearing asset, but the total value (overall value) of various assets of an entity exceeds the sum of its individual values; Unrecorded assets refer to excellent management, loyal customers and favorable locations.
Baidu Encyclopedia-Goodwill