One of the most difficult assets to value in the balance sheet is goodwill. It is more easily recognised by outsiders than valued by accountants. An intangible asset, it is the premium above the fair value of the other assets that come together to manifest the value of an operating entity. Bankers don’t like it and auditors wrestle over how to justify its carrying value, but any acquirer of the company will have to pay for it. As mysterious as it may be to pin down, it is this premium to the net-asset value that differentiates the winners from the also-rans. What, after all, is a collection of assets without a vision, leadership and a plan to put them to work to generate a return greater than the sum of their parts? Goodwill is a collective noun for many of its constituent parts, incorporating intellectual property, institutional memory and know-how. Though the calculations to justify the carrying value of goodwill are usually based on the discounted present value of future free cas...

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