Why Product Managers Should Care About Goodwill — Development Corporate

Accounting Goodwill has to be one of the more boring and esoteric financial topics. There are situations where product managers can benefit from having a basic working knowledge of it. Goodwill could impact their future bonuses and level of funding for their product lines.

Goodwill Basics

Investopedia defines goodwill as:

“Goodwill is an intangible asset associated with the purchase of one company by another. Specifically, goodwill is recorded in a situation in which the purchase price is higher than the sum of the fair value of all identifiable tangible and intangible assets purchased in the acquisition and the liabilities assumed in the process. The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology represent some examples of goodwill.”

A case in point is IBM’s recent acquisition of Red Hat. While IBM has not filed their year-end financial statements yet, the acquisition will add approximately $25 billion of goodwill to IBM’s balance sheet. In other words, IBM paid $25 billion more than Red Hat’s net assets at the time of the acquisition. As of the end of September IBM had about $35 billion in goodwill on their balance sheet.