Stock trading knowledge: What is a company's reputation? What is the reduction of goodwill of a listed company?

How is corporate goodwill formed?

Corporate goodwill refers to the capitalized value of a company's expected profitability that exceeds the normal profitability of identifiable assets. Simply put, the ability to expect me to earn more money next year than this year, and the specific value of this ability, is goodwill.

There is an old saying in the accounting industry that goes, "No acquisition, no goodwill.". That's right, the formation of goodwill originates from the merger and acquisition process between enterprises. Goodwill is an accounting item generated by the acquirer's valuation premium, that is, the difference between the merger cost and the fair value of the identifiable net assets of the target company in the merger of enterprises not under the same control.

For a more colloquial example, suppose a certain company goes publicAThe company plans to acquireBCompany,BThe company is a company that only50A company with ten thousand assets, which means its fair value is50Ten thousand. howeverBThe development prospects of the company are good, not only with immediate difficulties, but also with poetry and distant places. There is no other way,AListed companies want to acquireBFor the company, it must come up with100Ten thousand. After consolidating the financial statements, in order to maintain balance on both sides of the balance sheet,AThe excess of premium mergers and acquisitions by listed companies50Wan is called goodwill in accounting standards.

The impact of goodwill on company development?

stayAIn the stock market, mergers and acquisitions of companies are generally at a premium. The more companies a company acquires, the higher its accumulated goodwill over time. What are the impacts of excessive goodwill on company development?

As we mentioned above, the essence of goodwill is the ability to overdraw future profits and pay for the potential profits in the future. However, there is too much uncertainty in whether the invested company can make money in the future. When investing in listed companies, ordinary investors can seek professional advice, and private equity ranking websites that do not charge subscription fees are one of the options.

Goodwill is an asset that, like other assets, requires a company to spend financial costs to purchase or spend time, resources, and finances to produce. But it is different from other assets, each with its own purpose. Intangible assets such as software can be used, and inventory assets can be used to produce products, but goodwill cannot be of any use.

But once goodwill is impaired, it directly impairs the company's net profit, seriously damaging the company's value and performance. Moreover, goodwill impairment cannot be deducted from taxable income, so it cannot even be offset against income tax. For example, there is an antique in the market that people generally believe is only50Block, at this point you spent100If you buy it, and one day you find out that this antique is a fake, you'll have to spend more50Yuan(goodwill)You still have to start from your own pocket(Net profit)Deduction cannot even offset taxes. But if this antique is real, then you are considered a successful investment and income(profit)The price of miso has also risen.

Overall, a company's reputation is like a double-edged sword. It is difficult to develop and grow its business without acquiring other high-quality companies, and there are certain risks associated with excessive mergers and acquisitions.AThere are many cases in the stock market that have occurred due to impairment of goodwill. Taking Huaxun Ark as an example, the company had previously anticipated that2015The total annual profit is1.13Billion yuan, but at the time of annual report disclosure, the total profit of the company was-2.6RMB100mn One of the reasons why the company's profits turned from profit to loss was due to the provision of provisions2.7The impairment provision for goodwill of billions of yuan has a significant impact on the company's total profit for the current period.

What is the difference between goodwill impairment and goodwill amortization?

According to existing accounting standards, goodwill has always existed in the asset items of the company's financial statements. In order to ensure the value of goodwill remains, the company needs to conduct impairment testing at least once a year. If impairment is confirmed, an impairment provision needs to be made. That is to say, goodwill is only recognized as a loss when it is confirmed that the acquiring party's investment has failed. Once a loss occurs, it will affect the net profit.

So how does the standard for impairment provision depend, and how does a company consider investment failure?In practical operations, many M&A targets and original shareholders will provide performance commitments to improve the approval rate of M&A plans. Often, there is a gap between verbal promises and reality. Once a performance promise expires and it is found that the promise falls through, the listed company is considered an investment failure and needs to conduct an impairment test on goodwill. After the impairment loss of goodwill is confirmed, it is directly deducted from profits.

And goodwill amortization is to treat goodwill as deferred expenses and deduct it from the company's profits annually through amortization. For example, Pai Pai Jun acquired a milk tea shop and its assets10Wan, Pai Pai Jun spent it15Acquired by Wan, it's a lot of money510000 yuan of goodwill, planned to use5If the amortization is carried out over an annual period, it will have to be deducted from the profits of Pai Pai Jun every year1Ten thousand yuan until the amortization of goodwill is completed.

In fact, the two ways of handling goodwill, impairment and amortization, are similar to the difference between probation and immediate execution.