Writing Off Goodwill: What Happens When A Company’s Goodwill Goes To Zero?

Michael D. Moberly    March 26, 2010

Goodwill represents an intangible bond between a company, its products and/or services, and its employees, clients, customers, investors, suppliers, distributors, shareholders, and stakeholders, etc. 

Of late though, there is evidence that some companies are opting, with more frequency and less (adverse) stigma, to play the so-called goodwill (impairment charge) write-off card under a variety of circumstances and for a variety of reasons. 

Putting aside for the moment, the accountancy and tax upsides relative to goodwill impairment charges, my question is, what are, are there, or won’t there be adverse consequences and/or reactions at some point when companies opt to literally write-off large sums of their goodwill, or when their goodwill goes, figuratively speaking, to zero?

Are employees, clients, customers, investors, suppliers, distributors, shareholders, and stakeholders oblivious to this?, are their reactions neutralized?, do they care?  Is it not an axiom of good business practice that goodwill represents a substantial and underlying factor to a company’s profitability and sustainability?

Quite understandably, if you are a stockholder in a company whose stock price plummets which the company in turn attributes (whole or in part) to diminished (impaired) goodwill and opts to write-off it off there are, intuitively, consequences.  One of which is a stockholder now holds less value in the company today than they did yesterday which presents the stockholder with some unwanted options.

(This post was inspired and modified by Michael D. Moberly from a CFO.com article titled ‘Goodwill Hunting’.)

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