Negative Goodwill

AAA

DEFINITION of 'Negative Goodwill'

A gain occurring when the price paid for an acquisition is less than the fair value of its net tangible assets. Negative goodwill implies a bargain purchase. Negative goodwill may be listed as a separate line item on the acquiring company's balance sheet and may be considered income. For the purchased company, negative goodwill often indicates a distress sale, and the unfavorable sale conditions lead to a depressed sale price.

INVESTOPEDIA EXPLAINS 'Negative Goodwill'

Negative goodwill is based on the concept of goodwill, an intangible asset that represents the worth of a company's brand name, patents, customer base and other items that are difficult to price but that help to make a company valuable. Most of the time, a company will be purchased for more than the value of its tangible assets, and the difference is attributed to goodwill. When the price paid is less than the actual value of the company's net assets, you have negative goodwill.



VIDEO

Loading the player...
RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Goodwill

    An account that can be found in the assets portion of a company's ...
  3. Invisible Assets

    An item of value that is intangible and that cannot be seen, ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a ...
  5. Fair Value

    1. The estimated value of all assets and liabilities of an acquired ...
  6. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
RELATED FAQS
  1. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Full Answer >>
  2. What is the difference between earnings and income?

    The differences between earnings and income change depending on the context. Technically speaking, personal earnings are ... Read Full Answer >>
  3. How do you calculate shareholder equity?

    Shareholders' equity is listed on a company's balance sheet and measures its net worth. A company's shareholders' equity ... Read Full Answer >>
  4. What is the difference between earnings and profit?

    Earnings, specifically retained earnings, and profit are often used as synonyms in corporate finance, although they are different ... Read Full Answer >>
  5. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  6. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Personal Finance

    Can You Count On Goodwill?

    Carefully examine goodwill and its sources before considering the value of your investment.
  3. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  4. Stock Analysis

    How To Analyze Netflix's Income Statements

    Learn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
  5. Economics

    Calculating Net Realizable Value

    An asset’s net realizable value is the amount a company should expect to receive once it sells or disposes of that asset, minus costs from its disposal.
  6. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  7. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  8. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  9. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  10. Fundamental Analysis

    What is Year-to-Date?

    Year-to-date (YTD) is a term that describes financial results from the beginning of the current year up to the day the financial number is reported.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!