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It's BS assets that companies use to add phantom value to a balance sheet with things like "brand value" and "intellectual capital". There's no way to assess an

by dkrich 10y ago

It's BS assets that companies use to add phantom value to a balance sheet with things like "brand value" and "intellectual capital". There's no way to assess an actual value, so a lot of companies give outlandish valuations to themselves to make themselves appear more valuable than they are. Some people will disagree with that, but that's the reality. There are of course a lot of companies that have extremely valuable brands and IP, but those tend to trade at pretty fair market valuations and don't have an unusually high percentage of goodwill relative to the rest of their assets. In the case of CenturyLink, that would be a major red flag to me.

samfisher83 10y ago
Goodwill is just accounting. It is your what you pay - net assets whats on their balance sheets. No real BS about that.
- dkrich 10y ago
  Right, but just because an accounting team says "Well yeah the market values the company at $5B, but we think it's worth $15B because goodwill" does not make it so. In some cases, there is additional value created by an acquisition that can justify that added value, but in many cases it's just a way to justify an irrational overvaluation on a balance sheet. For example, the last time I looked CTL had lost about $2 billion in market cap after this deal was announced. That's the market saying "you overpaid for this company" or, as I prefer to say "your goodwill valuation is BS."
  - kgwgk 10y ago
    It doesn't work like that. You're not paying $15bn for some assets worth $5bn because you have decided that the "goodwill" is $10bn. It's the other way around: you have decided to pay $15bn and as a result you write down in your books tangible and intangible assets for $5bn and "goodwill" (the balance) for $10bn. Maybe you think it's better to write off the $10bn as wasted money right away, but that also creates some issues (for example, you would probably wipe off your profits for several years, so you wouldn't have to pay taxes).
    - dkrich 10y ago
      Goodwill is the amount you paid beyond the tangible assets (cash, property, equipment, accounts paid, etc.) on the balance sheet. You can call it what you like, but basically it's something you spent cash on that you have to show on a balance sheet but has no tangible value. This is usually attributed as "synergies", "IP", "brand recognition" and other BS.
      - kgwgk 10y ago
        > Goodwill is the amount you paid beyond the tangible assets Wrong. For example "Hewlett-Packard purchased Autonomy for $11 billion in 2011. The purchase price represented a greater than 65 percent premium over the price at which Autonomy was trading at the time of the announcement. Hewlett-Packard recorded $6.9 billion of goodwill and $4.3 billion of other intangible assets in connection with the acquisition."
        dkrich 10y ago
        Ha and how'd that work for them? According to the Wikipedia entry, "within a year HP had written off $8.8 billion of the value." Thanks for helping me make my point.
        kgwgk 10y ago
        You're welcome. Just to be clear, I agree that paying too much when making acquisitions is not a good business model. But goodwill is not the reason for overpaying, or an excuse for overpaying. Goodwill is the consequence of overpaying.

by dkrich 10y ago

samfisher83 10y ago

Goodwill is just accounting. It is your what you pay - net assets whats on their balance sheets. No real BS about that.

dkrich 10y ago
Right, but just because an accounting team says "Well yeah the market values the company at $5B, but we think it's worth $15B because goodwill" does not make it so. In some cases, there is additional value created by an acquisition that can justify that added value, but in many cases it's just a way to justify an irrational overvaluation on a balance sheet. For example, the last time I looked CTL had lost about $2 billion in market cap after this deal was announced. That's the market saying "you overpaid for this company" or, as I prefer to say "your goodwill valuation is BS."
- kgwgk 10y ago
  It doesn't work like that. You're not paying $15bn for some assets worth $5bn because you have decided that the "goodwill" is $10bn. It's the other way around: you have decided to pay $15bn and as a result you write down in your books tangible and intangible assets for $5bn and "goodwill" (the balance) for $10bn. Maybe you think it's better to write off the $10bn as wasted money right away, but that also creates some issues (for example, you would probably wipe off your profits for several years, so you wouldn't have to pay taxes).
  - dkrich 10y ago
    Goodwill is the amount you paid beyond the tangible assets (cash, property, equipment, accounts paid, etc.) on the balance sheet. You can call it what you like, but basically it's something you spent cash on that you have to show on a balance sheet but has no tangible value. This is usually attributed as "synergies", "IP", "brand recognition" and other BS.
    - kgwgk 10y ago
      > Goodwill is the amount you paid beyond the tangible assets Wrong. For example "Hewlett-Packard purchased Autonomy for $11 billion in 2011. The purchase price represented a greater than 65 percent premium over the price at which Autonomy was trading at the time of the announcement. Hewlett-Packard recorded $6.9 billion of goodwill and $4.3 billion of other intangible assets in connection with the acquisition."
      - dkrich 10y ago
        Ha and how'd that work for them? According to the Wikipedia entry, "within a year HP had written off $8.8 billion of the value." Thanks for helping me make my point.
        kgwgk 10y ago
        You're welcome. Just to be clear, I agree that paying too much when making acquisitions is not a good business model. But goodwill is not the reason for overpaying, or an excuse for overpaying. Goodwill is the consequence of overpaying.