Goodwill

They're in very different stages of development.

One is called Business Combinations, Disclosures, and Goodwill, and that one is much more advanced, near the end.

And the other one is in earlier stages, and that's Intangible Assets.

So I decided I wanted to talk about Business Combinations, Disclosures, and Goodwill.

So when you think about this project, and it's been going on for a while, when we started this project, there were very broad ambitions because what we wanted to do was to get better information to users, investors, about acquisitions and how they're performing after the acquisition has closed, and also improving the impairment test.

And each stage we went through, we talked about whether or not to reduce the amortization of goodwill.

And when the accountants built that purchase price bridge, what did Walgreens actually buy? Identifiable hard assets? Equipment? Not even close.

About $8.04 billion of that $10.05 billion was booked straight into Goodwill.

Roughly 80%.

Goodwill is the accounting value assigned to future growth and synergies that cannot be separately identified on a balance sheet.

It is essentially the premium you pay for the promise of what an asset could become tomorrow.

It is the price of hope.

The sponsor took liquidity off the table, while Walgreens inherited the operating and valuation risk of making the combined platform work.

And the accounting reflected that risk immediately.

So what is it that you need to know about goodwill in order to pass the SBR exam? That was the question I was asked today by one of my students, Kieran, and I thought I would share with you my answer.

My name is Tom Clendon, and I help students pass the SBR examination.

So, what do you need to know about Goodwill? It has three ingredients when you're calculating it.

The investment, the NCI, the net assets.

The investment is the parent's investment.

Right.

Now, partially offsetting this massive stated liability on the balance sheet is an asset called Goodwill listed at $15.5 billion.

That Goodwill represents the premium the conglomerate paid historically over book value to acquire the float generating capabilities of these insurance operations in the first place.

OK, let's unpack this.

We have a massive liability of $70 billion and a smaller asset of $15 billion.