Novice Investing - Goodwill Not So Good Part 2

Date: Monday 01st 2008f December 2008 05:15:08 PM

Goodwill Not So Good part 2 - 10/14/2005

By: Novice Investing Staff

Companies with huge goodwill on its balance sheets should be valued lower than similar companies with low or no goodwill. The reason is that goodwill can be thought as 'invisible asset' that may be worth nothing. Our observation shows that newspaper stocks and media company have a large amount of goodwill in their balance sheet. These are partly due to past acquisitions.

The ratio of goodwill over total asset for the following companies are as follows: Gannett Co Inc. (GCI) = 63.8%, Knight-Ridder Inc (KRI) = 42.5%, Tribune Co (TRB) = 39.4%, New York Times Co (NYT) = 33.2 %, CNET Networks Inc. (CNET) = 32.8%, Time Warner Inc. (TWX) = 32.4%, Walt Disney Co (DIS) = 31.5%. Comcast Corp (CMCSA) has a slightly better ratio compared to other media companies with 13.4%.

Most companies carry goodwill on their balance sheet. If they have never acquired other companies or if the goodwill has been depreciated completely, then the goodwill on its balance sheet should be $ 0. Several common stock that fit the criteria is Pier 1 Imports Inc. (PIR), Sharper Image Corp. (SHRP) and Anheuser-Busch Companies Inc. (BUD).

Please note that we are not recommending companies with $ 0 goodwill on their balance sheet. We merely point out that goodwill should be taken into consideration when investors are trying to value a company.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities.

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