Monday, May 08, 2006

What exactly is Goodwill???

I was looking at one of my Annual Reports for a stock that I own. In reading the 10-K, I wondered “Why is it that I own this stock???”… But, getting past that, I was looking at their balance sheet. Here is where you get to see how much the company made and spent for the previous two years. Just as a side thought, you should really make more money that you spend, (+) is a good thing and (-) are bad… just a thought. I guess that this company is taking lessons from the Federal Government. Back to the subject at hand, I found this entry.. Goodwill - $15,000… huh?? What the F is Goodwill and how can you put a value on it. According to American Century “An intangible asset that represents the value of a corporation's name, customer service, employee morale, and other such factors that are anticipated to translate into higher earning power. However, as an intangible asset, it does not have a liquidation value and accounting principles require that it is written off over a specific time period.”

So, it is a made up number… gotcha.. So, why not have it be a trillion dollars? I guess it is easier to justify some fictitious lower number than making it equal the amount of money Bill Gates spends for a new house. I love accounting… NOT…

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