# Goodwill Calculator

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

**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`

.

**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`

.

**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.

**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:

**Determine the purchase price of the company****Calculate the market value of the company's assets****Calculate the market value of the company's liabilities****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.