How does goodwill differ from other companies
The terms company value, business value or goodwill sound familiar to you, but you no longer know exactly what this is about? Then watch out now!
- Calculation of the goodwillin the text
- Calculation of goodwill using an examplein the text
- Difference between intrinsic value and purchase pricein the text
- Difference between original and derivative goodwillin the text
- Derivative goodwill and the German Commercial Codein the text
Calculation of the goodwill
Goodwill, which is also often referred to as goodwill, is a name for an intangible asset item of a company.
Calculation of goodwill using an example
First of all, let's clarify what goodwill actually is. It is best to look directly at a specific example.
Imagine your company is buying another company. This company has assets of 6 million euros. However, it also carries a mountain of debt of 3 million euros. The price at which you buy the company is 12 million euros.
The goodwill now represents the difference between the purchase price and the difference between assets and debts. First of all, let's find the difference between assets and debts. You can see that this is 3 million euros.
This value is also called the intrinsic value of a company. As you know, the purchase price of the company is 12 million euros. If we now look at the difference between the intrinsic value and the purchase price, you can see that the purchase price is inflated by 9 million, so to speak. This excessive value is referred to as goodwill or goodwill.
It is, so to speak, the “good will” that a buyer shows by offering more than the company is actually worth in material terms.
Difference between intrinsic value and purchase price
You are probably wondering why there is such a big difference between the intrinsic value and the purchase price of the company. This is actually quite simple. Often one expects positive expectations for the future that the purchase of the company brings with it. Further factors that influence the company value are, for example, the image of the company, the customer base, the quality of management or the location of a company. So it's about taking into account the intangible value of the company.
Difference between original and derivative goodwill
Now let's take a look at how you can differentiate between original and derivative goodwill. The original goodwill means the value created by the company itself.
Examples of this would be the customer base or the company's image. The derivative goodwill, on the other hand, is goodwill acquired against payment. This arises, for example, from buying up another company.
Derivative goodwill and the German Commercial Code
It is also important to know that the derivative goodwill according to § 246 of the Commercial Code is an asset that can be used for a limited period of time. It must be activated, i.e. taken over into the balance sheet. One speaks here of an activation requirement. In contrast to this, the original goodwill may not be accounted for in accordance with Section 248 HGB. So there is a ban on accounting.
So now you finally know what the term derivative or original goodwill is all about. It's best to remember the formula for the company value: "Purchase price - intrinsic value".
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