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Goodwill

The part of an acquisition price above the fair value of the assets you can identify. It pays for things like reputation, the customer base and expected future growth.

Simple example

A company buys a smaller one for $100. The smaller company's buildings, cash and other assets that can be listed are worth $60. The other $40 is recorded as goodwill: the extra paid for things like the brand and the customers.

$100Price paid$60$40GoodwillAssets youcan listWhat it's recorded as
Made-up numbers, for illustration only.

Related terms

ImpairmentA write-down when an asset is worth less than its book value.AmortizationSpreading the cost of intangible assets over the years they're useful.Balance sheetWhat a company owns and owes on one day.