Goodwill
Goodwill is the residual purchase-price premium over identifiable net assets in an acquisition — an accounting plug that must be tested, not amortized in US GAAP.
Definition
When you buy a firm for more than the fair value of identifiable net assets, the gap is goodwill. It sits as an indefinite-lived asset and is impaired when the reporting unit’s fair value falls. It is not a separable cash machine.
Why it matters
Serial acquirers can look asset-rich and ROIC-poor. Impairments are delayed admissions that the premium was a transfer to the seller.
Case
A 2021 software roll-up books $8bn of goodwill. In 2023 the unit’s DCF is recut and $3bn is impaired. Cash did not leave that day; the story did.
How to read it
Track goodwill / equity and impairment history. Incremental ROIC including goodwill is the adult number.