Corporate FinanceFinancial Glossary
Goodwill
Definition
An intangible asset that arises when a company is acquired for more than the fair value of its identifiable net assets. Goodwill represents the value of brand reputation, customer relationships, employee expertise, and other non-physical assets that contribute to future earnings.
Why It Matters
High goodwill on a company's balance sheet means it has paid premium prices for acquisitions. If the acquired business underperforms, goodwill must be written down (impaired), causing a sudden and sometimes massive hit to reported profits. Frequent goodwill impairments signal poor acquisition discipline.