What is 'Badwill'

Badwill is also known as negative goodwill, and it occurs when a company purchases an asset at less than net fair market value. Typically, badwill occurs when one company purchases another at a price that is below its book value. This may happen if the outlook for the company is particularly bleak.

BREAKING DOWN 'Badwill'

When one company acquires another company at a value that is greater than the market value of assets and liabilities, it records the excess amount on its balance sheet as "good will." Companies with strong brands, for example, are often acquired at a price above the value of the market value of the assets and liabilities because their value as a company lies partly in their brand name and other intangibles that make them attractive to customers. The value in excess of the fair market value is good will. Goodwill is an intangible asset.

Companies may also be acquired at a price that is less than their asset value. Often this occurs when a company is in financial distress. In this case, the acquiring company records on its balance sheet the difference between the fair market value and the price paid as negative goodwill, also known as badwill.

Badwill can also refer to the negative effect felt by a company when investors discover it has done something that is not in accordance with good business practices. Although typically not expressed in a dollar amount, badwill can result in lost revenue, clients, suppliers and market share and may even prompt legal action.

RELATED TERMS
  1. Goodwill

    Goodwill is an intangible asset that arises as a result of the ...
  2. Goodwill To Assets Ratio

    The goodwill to assets ratio is a ratio that measures how much ...
  3. Negative Goodwill

    Negative goodwill is an accounting gain that occurs when the ...
  4. Bargain Purchase

    In a bargain purchase a corporate entity is acquired by another ...
  5. Asset Valuation

    Asset valuation is the process of determining the fair market ...
  6. Fair Value

    Fair value is the value of a company’s assets and liabilities ...
Related Articles
  1. Investing

    Writing Down Goodwill

    An ill-fated acquisition of Hewlett-Packard's demonstrates what can happen when goodwill goes bad.
  2. Investing

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  3. Investing

    Ben Graham on Interpreting Financial Statements

    Seven pieces of advice from Benjamin Graham on understanding financial statements.
  4. Investing

    Impairment charges: The good, the bad, and the ugly

    An impairment charge is a term used to describe writing off worthless goodwill. Learn its potential impact is on EPS.
  5. Investing

    Cheap Stocks or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
  6. Investing

    Reading the Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  7. Investing

    The Difference Between Enterprise Value and Equity Value

    Enterprise value calculates a business’s current value, while equity value offers a snapshot of that business’s current and potential future value.
  8. Investing

    Reviewing Assets On The Balance Sheet

    A firm uses its assets to generate sales and bottom-line profits for shareholders. A healthy company will continually grow its assets, which stems from leftover profits that are reinvested back ...
RELATED FAQS
  1. Is goodwill considered a form of capital asset?

    Learn more about capital assets of a business, and understand why goodwill is an intangible asset that is classified as a ... Read Answer >>
  2. What is the difference between carrying value and fair value?

    Learn about the carrying value and fair value of assets and liabilities, what the carrying and fair value measure and the ... Read Answer >>
  3. How does goodwill amortize?

    Learn about the Financial Accounting Standards Board 's (FASB) rules for goodwill amortization, how the rules have changed ... Read Answer >>
  4. How do intangible assets show on a balance sheet?

    Intangible assets are often intellectual assets, but their valuation and accounting can vary, depending on whether they're ... Read Answer >>
  5. What are the differences between amortization and impairment?

    Learn the differences between amortization and impairment as they relate to intangible assets held on a company's balance ... Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center