Wednesday, September 28, 2022

Earlier this week Calcbench held our annual webinar on the state of goodwill assets and impairment. The session went off wonderfully thanks to our stellar lineup of speakers, and to keep the conversation going we have a recap of their main points below.

First, for anyone who missed the webinar: you can watch an archived version on the Calcbench YouTube channel. The entire episode lasts 60 minutes, and the speakers include:

  • P.J. Patel, head of Valuation Research Corp.;
  • Sandy Peters, head of financial reporting policy for the CFA Institute;
  • Scott Taub, head of consulting firm Financial Reporting Advisors and a former top accounting official at the Securities & Exchange Commission;
  • Pranav Ghai, CEO and co-founder of Calcbench.

We explored several questions over the course of the webinar. Among them…

The size of goodwill assets in total, and as a percentage of the balance sheet. Among the S&P 500, total goodwill assets rose 31.7 percent over the last five years, from $2.86trillion in 2017 to $3.77 trillion at the start of 2022.

That’s a lot in sheer dollars, but actually goodwill has stayed rather flat as a percentage of total assets. Total assets grew by 30.7 percent over the same five-year period, so goodwill isn’t swelling up to be a disproportionate center of gravity on the balance sheet. See Figure 1, below.

That said, goodwill and intangible assets can still be a huge portion of specific merger and acquisition deals. For example, when acquired Slack last year for $27.07 billion, goodwill was $21.16 billion of that purchase price — 78.1 percent of the whole deal. Other intangible assets accounted for another $6.35 billion of purchase price allocation. Together those two components exceed the entire purchase price, although when you net out other items the math all works out eventually.

On the webinar we explore why that is, and how analysts can think about goodwill valuation: what specific things fall under goodwill, and how you might begin to assess whether the goodwill valuation in a deal reflects sound judgment about future business prospects.

Impairments, Inflation, and More

Another important point about goodwill assets is that companies must test the value of those assets every year to see whether they should be impaired. That can result in a nasty punch to earnings and stockholder equity.

Impairments did spike in 2020, as the pandemic challenged the business models of so many companies. Then impairments fell in 2021 as economic growth stabilized; see Figure 2, below. 

So what will happen with impairments in 2022 and beyond? Our webinar panelists weren’t quite sure, because nobody has seen inflation like today’s numbers for roughly 40 years — while the accounting model for impairments has only been around for roughly 20 years.

So, as panelist Scott Taub said, nobody really knows how the current impairment model will hold up for inflation like we see today. This situation has never happened before. Taub, Patel, and Peters all offered their thoughts on how financial analysts might navigate the quarters to come.

Also up for discussion were:

  • Discount rates for deal valuation, which are rising, and that can have profound implications for financial projections;
  • Forthcoming new standards for disclosure of segment reporting and joint ventures;
  • The bursting of the SPAC bubble earlier this year;
  • And lots more!

We hope you find the webinar useful. If you have ideas for other issues we should explore in future webinars, drop us a line any time at

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