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Definition: Goodwill

In the balance sheet of a company, goodwill comes as a head under the asset side. Goodwill is the intangible value added to the company over its book value. Goodwill is usually talked about when a company acquires another company.

It is an intangible asset generated over time due to the company’s brand name, good customer and employee relationship, availability of advanced technology.

Let’s take an example of a company A. The company may have net assets valued at say 1 billion dollars. However when a company B want to acquire company A it ends up paying 10 billion dollars.

The difference of this 9 billion dollar is referred to as goodwill or the value over the book value of firm A.

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