Accounting and Finance

Question 1

What is goodwill?

Answer 1

Goodwill represents the intangible portion of what you pay above the companies book value. It exists because you ‘write off’ the other companies equity and compensate in part with intangible synergies.

Question 2

How does an impairment and write-down impact net-income and cash-flow

Answer 2

These charges fall in similar lines as depreciation.
IS- New field after operations, NIBT goes down, tax expense down, NIAT down
SCF- add-back the non-cash expense in ops, NCF OP up (due to taxes), final cash balance goes up
BS- Asset/ Goodwill value goes down, compensated by cash, equity (retained earnings)