Goodwill Calculator

Created by Wei Bin Loo
Reviewed by Arturo Barrantes and Adena Benn
Last updated: Aug 30, 2022

With this goodwill calculator, we aim to help you figure out the goodwill value of the company when they are purchased.

We have written this article to help you understand the definition of goodwill and the goodwill calculation. We will also demonstrate some examples to help you understand the calculation.

What is goodwill value?

The goodwill value is considered the theoretical value of the intangible assets of the company. It usually appears on the balance sheet of the acquirer after acquiring another company. The goodwill value can be either positive or negative.

If the goodwill value is positive, it means that the acquirer is paying more than the market value of the net tangible assets of the target company. This inherently means that the acquirer thinks the target company has some value in its intangible assets. If the goodwill value is negative, the acquirer is paying less than the market value of the target company's net assets. This usually happens when the target company is distressed and needs to sell itself off fast.

How to calculate goodwill value? Goodwill calculation

To understand the goodwill calculation, let's take Company Alpha as an example:

  • Name: Company Alpha
  • Purchase price: $1,000,000
  • Market value of its assets: $450,000
  • Market value of its liabilities: $400,000
  1. Determine the purchase price of the company

The first step is to determine the purchase price of the company. For our example, Company Alpha will be purchased at a price of $1,000,000.

  1. Calculate the market value of the company's assets:

Then, you will need to calculate the market value of assets of the company. The market value of assets for Company Alpha is $450,000.

  1. Calculate the market value of the company's liabilities

The next step is to calculate the market value of the liabilities of the company. This number is $400,000 for Company Alpha.

  1. Calculate the goodwill value of the company when it is purchased

The last step is to calculate the goodwill value with the goodwill formula below:

goodwill = purchase price - (market value of assets - market value of liabilities)

Hence, if Company Alpha is purchased at a price of $1,000,000, it will generate a goodwill of $1,000,000 - ($450,000 - $400,000) = $950,000 in the balance sheet of the acquirer.

FAQ

Can goodwill be negative?

Yes, goodwill can be negative when a buyer purchases an asset at a price less than its market value.

How do I calculate goodwill value?

You can calculate goodwill value in four steps:

  1. Determine the purchase price of the company
  2. Calculate the market value of the company's assets
  3. Calculate the market value of the company's liabilities
  4. Apply the goodwill formula: goodwill = purchase price - (market value of assets - market value of liabilities)

Is goodwill a tangible asset?

No, goodwill is not a tangible asset. For instance, a company's brand value can be regarded as the goodwill of the company when it is bought.

What is market value of an asset?

The market value of an asset is the amount of money that you can obtain by selling it at the market now. It reflects the amount of money the asset is currently worth.

What is the goodwill if the purchase price is $500,000 and the net assets is $400,000?

The goodwill will be $100,000. This can be calculated by deducting the market value of the net asset from the purchase price.

Wei Bin Loo
Purchase price
$
Fair value of the asset
$
Fair value of the liabilities
$
Goodwill
$
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