Is too much goodwill a bad thing?

It means that the company has acquired other entities for a consideration higher than Fair Market Value of Net Assets. Goodwill does not measure synergy, it measures how much I overpaid. So I will have to go into the specifics to know whether my Goodwill is justified. Goodwill ends up being impaired very frequently so that causes a loss. Usually, all other things being equal, too much Goodwill is a cause of concern since it’s a fictional asset created only for accounting purposes
Usually Goodwill is much more prone to impairment than say a building or machinery. So if I have 2 companies who are exactly same in all other aspects, but one holds building and the other goodwill, I’ll prefer the one with building. Goodwill reflects how well or how poorly you negotiated an acquisition. If you negotiated well, you will get lower goodwill. If you negotiated poorly you’ll get a lot of Goodwill. One might say – the same about buildings – if you pay more you get a higher value on your Balance Sheet. The difference is that buildings are usually purchased at or close to their Fair Value. The same is not true for entire companies

Study Smart: The Ultimate Exam Guide by Yugantar Gupta
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