Stock Market Glossary
Goodwill
Balance sheet item that reflects the purchase price paid in excess of the net assets.
In brief: Balance sheet item that reflects the purchase price paid in excess of the net assets.
Meaning in practice
Goodwill arises in acquisitions when the purchase price is above the fair value of the acquired assets. It must be checked annually for value – large write-offs are often a harbinger of wrong strategic decisions.
Context for investors and traders
For investors, the term becomes practical in the context of objectives, time horizon, risk capacity and costs. A suitable solution can differ between two people even when they consider the same product or metric.
How to use this in practice
The term becomes practical when expressed in numbers: what is the position weight, which costs apply, what loss is possible and what role does it play in the portfolio? These questions prevent an otherwise useful product from becoming too large or being used at the wrong time.
What to keep in mind
Include taxes, spreads, product structure and personal liquidity reserves in comparisons. Historical returns and a fund’s or index’s characteristics describe the past, not a promised future result.
