Goodwill (Accounting): What It Is, How It Works, How To Calculate

What Is Goodwill? Goodwill is an intangible asset that is associated with the purchase of one company by another. It represents the value that can give the acquiring company a competitive advantage. Specifically, a goodwill definition is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process. The value of a company’s name, brand reputation, loyal customer base, solid customer service, good employee relations, andproprietarytechnology represent aspects of goodwill. This value is why one company may pay a premium for another.Key TakeawaysGoodwill is an intangible asset that accounts for the excess purchase price of another company.Items included in goodwill are proprietary or intellectual property and brand recognition, which are not easily quantifiable.Goodwill is calculated by taking the purchase price of a company and subtracting the difference between the fair mar...