Goodwill

Goodwill is an intangible asset. It arises only in business combinations when a company is purchased for more than its physical assets were worth. It is the excess of cost over the fair value of the net assets acquired.

Goodwill is often referred to as the most intangible of all intangible assets because it can only be identified with the business as a whole. The only way to sell goodwill is to sell the business.

The value called goodwill can represent:

• strong brand
• reputation
• high employee morale
• costs incurred in getting the land in condition for its intended use:
• potential future earnings
• customer service

Learn how to analyze a balance sheet in terms of company's liquidity and solvency using financial ratios such as the current ratio, quick (or acid) ratio, debt to asset ratio and debt to equity ratio.