September 2026
There are numerous definitions of goodwill as it relates to a business. The following are a few of these definitions and how goodwill can be calculated or valued.
The Merriam Webster dictionary defines goodwill as: “(1) the favor or advantage that a business has acquired especially through its brands and its good reputation; (2) the value of projected earnings increases of a business especially as part of its purchase price, and; (3) the excess of the purchase price of a company over its book value which represents the value of goodwill as an intangible asset for accounting purposes.”
Goodwill is defined by the American Society of Appraisers as “An Intangible Asset which represents any future economic benefit arising from a business or a group of assets which is not individually identified or separately recognized. Goodwill can arise as a result of name, reputation, customer loyalty, location, products and similar factors not separately identified.”
According to the Institute for Mergers, Acquisitions and Alliances, “Goodwill is created when a company pays more for an acquisition than the fair market value of the net assets acquired. The difference between the purchase price and the fair market value of the net assets acquired represents the premium that the acquiring company is willing to pay for the target company. The premium is often paid for intangible assets that are not reflected on the target company’s balance sheet, but that are nevertheless valuable to the acquiring company.”
Goodwill in an acquisition can be calculated by taking the purchase price and subtracting the fair market value of tangible assets and identified intangible assets. Goodwill in an acquisition is often referred to as “Blue Sky”.
Lastly, goodwill can be valued by capitalizing earnings in excess of required returns on the other assets of the business. The capitalization rate used to value goodwill is normally greater than that of tangible and other intangible assets.
Relevant Court Cases
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Jason M. Sneed v. Charity A. Johnston (Sneed),
The Supreme Court of North Carolina,
No. 130PA24,
filed August 14, 2026
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Savannah Shoals, LLC et. al. v. Commissioner of Internal Revenue,
Court of Appeals for the Eleventh Circuit,
No. 24-12661,
filed July 16, 2026
Recent Business Valuation Articles
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“Value Estimates for U.S. Patent
Grants,”
by Johnathan Federle, Dietmar Harhoff,
and Ann-Christin Kreyer,
dated April 2026
-
“Can Hyperscalers Earn Back Their
AI Infrastructure Investment? Value Creation,
Value Capture, and Investment Recovery,”
by Kwanho Shin,
dated August 2026
Recent Engagements
- Valuation of the voting and
non-voting common stock
of a niche management services
provider on a shared-control
basis for gift tax reporting
purposes.
- Valuation of 100% of the
common stock of a specialty
engineering firm on a controlling
interest basis for corporate
planning purposes.
- Valuation of a member interest
in a mostly real estate holding
company on a minority interest
basis for gift tax reporting/sale
purposes.
- Valuation of the voting and
non-voting common stock of
a niche manufacturing company
on a shared-control basis
for estate tax reporting
purposes.
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