Goodwill to Asset Ratio Definition
Goodwill to assets ratio is the financial measurement which is used to compares the intangible assets to the total assets of the company to see that the goodwill recorded properly or not.
Intangible assets may be the brand name, customer list or the unique name of the company in the industry.
Definition: What is the Goodwill to Assets ratio?
If the company has a huge asset then it may be the goodwill of the company. Goodwill is the accounting term which is used for the company to value their reputation on the monetary form.
For the determination of the values of the company, goodwill needs to compare with other assets.
Goodwill to asset ratio used for the measurement of the relationship between the definitive assets of the company and its namesake power. If the ratio is high it means that assets vs company goodwill value are high.
Goodwill to Assets Ratio formula can be calculated by dividing the goodwill by total assets of the company. For calculation require value can be taken from the balance sheet of the company.
Goodwill to Asset Ratio = Goodwill/Total Assets
For the first step of calculating total asset value found on the balance sheet and goodwill value available in the non-current asset section of the balance sheet.
Apple is a branded company because of its product which needs no introduction. Now we suppose that a company acquire Apple by paying the more book value as compared to the assets of the company because of its customers and industry status. The payment of this extra amount is called goodwill. Apple demand 900 billion dollars then the company want to calculate how much price Apple take for its name. On the balance sheet, the book value of Apple is 100 Billion dollars. there is no debt acquire then the amount of goodwill for its acquire is 800 Billion dollars.
Goodwill to Asset Ratio = 800,000,000,000/900,000,000,000
Brand value of this company is eight times more than the asset of this company according to the above result. This high price of the company is due to the brand of the company.
Analysis and Interpretation
Acquiring company compare the Apple company with other company of its line in the same industry. If the purchasing company get this company then on the balance sheet it needs to report the 800 billion dollars of goodwill. It affects the balance sheet of the purchasing company and its own value.
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