3 ms·

"Goodwill" is the difference between the book value of a company (value of tangible assets) and what it can be sold for. A manufacturer with tooling, machines

by morganw 15y ago

"Goodwill" is the difference between the book value of a company (value of tangible assets) and what it can be sold for. A manufacturer with tooling, machines and inventory might not have much, but a software company's book value is near zero. People are asked to put value on intangibles all the time. You might want to write them all down to zero, but the rest of us value Wordsworth more than the dead trees his words are printed on.

jcampbell1 15y ago
No. Goodwill is the difference between the price paid to acquire a company and the book value of the acquired company. To put goodwill on the books, you must buy a company.
- achompas 15y ago
  Right, the key here is that goodwill is measurable. Opportunity costs are not.
  - allwein 15y ago
    Opportunity costs are measurable. It all depends on your assumptions whether the measurements are reasonable or not. Ex. If I make $2000 a week as a contractor on a steady contract, I know that the opportunity cost of taking a week of unpaid vacation time is $2000. That's a reasonable, measurable assumption. However, I could also say that the opportunity cost of that week of vacation will be $12000, because there might be a one-week rush project that will come in that I can bill for $10000 in addition to my normal steady contract. Assuming there's not a pattern of that happening in the past, it's not a reasonable assumption and thus measurable in that way. I'd say this second scenario is akin to the record companies assuming that every instance of piracy is also an instance of lost sales.
    - achompas 15y ago
      You're estimating an opportunity cost here, not measuring it. Goodwill can be measured in the sense that goodwill = purchase price - book value. No assumptions are involved in its calculations--goodwill is calculated based on two fixed values. Opportunity costs are not as concrete. In your example above you state your opportunity cost is $2000...but what if that rush project comes through? What if your steady contract scales back for that week? There are assumptions involved; ideally your opportunity cost would be the expected value of all probable incomes during that week. Identifying those probabilities a priori is impossible. My point is: opportunity costs are based on assumptions. They cannot be measured--only estimated.

by morganw 15y ago

jcampbell1 15y ago

No. Goodwill is the difference between the price paid to acquire a company and the book value of the acquired company. To put goodwill on the books, you must buy a company.

achompas 15y ago
Right, the key here is that goodwill is measurable. Opportunity costs are not.
- allwein 15y ago
  Opportunity costs are measurable. It all depends on your assumptions whether the measurements are reasonable or not. Ex. If I make $2000 a week as a contractor on a steady contract, I know that the opportunity cost of taking a week of unpaid vacation time is $2000. That's a reasonable, measurable assumption. However, I could also say that the opportunity cost of that week of vacation will be $12000, because there might be a one-week rush project that will come in that I can bill for $10000 in addition to my normal steady contract. Assuming there's not a pattern of that happening in the past, it's not a reasonable assumption and thus measurable in that way. I'd say this second scenario is akin to the record companies assuming that every instance of piracy is also an instance of lost sales.
  - achompas 15y ago
    You're estimating an opportunity cost here, not measuring it. Goodwill can be measured in the sense that goodwill = purchase price - book value. No assumptions are involved in its calculations--goodwill is calculated based on two fixed values. Opportunity costs are not as concrete. In your example above you state your opportunity cost is $2000...but what if that rush project comes through? What if your steady contract scales back for that week? There are assumptions involved; ideally your opportunity cost would be the expected value of all probable incomes during that week. Identifying those probabilities a priori is impossible. My point is: opportunity costs are based on assumptions. They cannot be measured--only estimated.