Thank you D! I expected a comment alike. I suspected that was the case but couldn’t readily find the answer, thank you. Thought that reading old things might eventually cause not being up to date.
Clear article highlighting important concepts - thankyou! For me there is a lot of relationship with this concept and ROIC - See's is a more attractive business because they generate the same amount of earnings from a lower base of tangible assets (i.e. higher ROIC) when compared to business A. There is a misconception that accounting goodwill is a "red flag" however this is clearly not always the case. The only thing I dont agree with is the following sentence "Thereafter, accounting principles make companies amortize the acquisition through the income statement until the goodwill is driven to 0." - under accounting rules you are not able to amortize goodwill only impair it.
Thank you infinitely for the comment! I had the suspicion about the flaw in that particular sentence, but I couldn't find the answer, honestly. Odds were high that this only applied for old accounting principles. Reading old things cause me to be not up to date in some respects, thank you.
It's indeed fascinating to analyze it from the ROIC's perspective. And the concept, nonetheless, on what goodwill represents, that's interesting.
This post compliments this one: https://rockandturner.substack.com/p/the-end-of-accounting-rely-on-it
Great article James!
Thankyou for the article. However, goodwill is not amortised. Goodwill stays in the acquirers balance sheet and is tested annually for impairment.
Thank you D! I expected a comment alike. I suspected that was the case but couldn’t readily find the answer, thank you. Thought that reading old things might eventually cause not being up to date.
This was my thought.
Clear article highlighting important concepts - thankyou! For me there is a lot of relationship with this concept and ROIC - See's is a more attractive business because they generate the same amount of earnings from a lower base of tangible assets (i.e. higher ROIC) when compared to business A. There is a misconception that accounting goodwill is a "red flag" however this is clearly not always the case. The only thing I dont agree with is the following sentence "Thereafter, accounting principles make companies amortize the acquisition through the income statement until the goodwill is driven to 0." - under accounting rules you are not able to amortize goodwill only impair it.
Thank you infinitely for the comment! I had the suspicion about the flaw in that particular sentence, but I couldn't find the answer, honestly. Odds were high that this only applied for old accounting principles. Reading old things cause me to be not up to date in some respects, thank you.
It's indeed fascinating to analyze it from the ROIC's perspective. And the concept, nonetheless, on what goodwill represents, that's interesting.