What is Goodwill?
Goodwill of a company is considered as an intangible asset that reveals the reputation, customer connection and other relevant factors of the business.
Goodwill represents the value of a business firm’s status. This value is not countable in the account book, but it can be realized if the business is ever sold since the goodwill of the firm reflects its selling price. If the firm has a brand with good reputation and high status in the market, the goodwill helps to increase the net worth of the firm. When the goodwill is lesser in the market, it brings negative value. Therefore, goodwill can be considered as a fixed asset that obtains the value in the company for a longer duration as 10 to 30 years.
Goodwill Valuation Guide
Goodwill of a company is usually tough to calculate to know it is worth since no one can touch or feel it. Hence, goodwill is also known as an intangible asset in the accounting terminology.
The valuation of goodwill can be assessed by finding out the difference the distinguishable net assets’ valuation of a firm and its total valuation.
However, apart from reputation, some other factors are also considered in the calculation of goodwill –
- Goodwill comes from the dedicated and strong customer base that can spread positive message and recommendation of the firm that results in more capital.
- A major advertisement campaign can influence the goodwill of a company.
The additional value of goodwill is also found in new agreements for partners or integrations that ultimately bring new income.