Goodwill

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What It Means

Goodwill is an intangible asset that arises out of an Acquisition when the purchase price paid for a company exceeds the acquired company’s book value (assets minus liabilities). It represents the value paid for assets that are not easily distinguished, such as a company’s brand name, reputation, customer relationships, and intellectual property.

Why It’s Important

Depending on the type of Acquisition, the resulting Goodwill may create an attractive Tax Shield for the Buyer. Goodwill arising from an Asset Purchase can be Amortized over a period of time, reducing the Buyer’s taxable income for years to come.

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