Goodwill

In a broad sense, the term goodwill is used to refer to the knowledge, experience and good reputation accumulated in the company. In a narrower sense, goodwill is an item in the books of a business.

When a company buys another business, it evaluates the company selected for purchase based on several criteria. In the process, a reasonable purchase price is determined. This price may even significantly exceed the (net) asset value or equity of the given company. This difference in value appears on the assets side of the buyer company's balance sheet as a positive business value of a company - this is called goodwill.

The amount of goodwill can be written off by the customer as depreciation over a specified period of time (5-15 years). This amount can therefore be reduced to zero in equal installments - it can therefore be removed from the company's accounting records.

All items that make a company worth more than, say, the property serving as its site and the material goods in it appear in goodwill. It contains all the knowledge accumulated in the company (know-how, patent, etc.), the experience of the employees, the loyalty of customers, and the value of the brand.

In everyday usage, the good reputation of the company is also referred to as goodwill. So, what the company's environment, the company's suppliers and the company's customers value. In this sense, goodwill is closer to the brand than in the accounting sense, but it is not exactly the same. In this form, goodwill also contains itemized values such as patent rights owned by the company or technological developments implemented.