Consolidated Revenue Increased 4.5% Consolidated Operating Cash Flow Increased 5.5% Consolidated Operating Income Increased 7.1% Earnings per Share of $0.33 Increased 57.1% Generated Free Cash Flow of $1.2 Billion Repurchased 15.5 Million Common Shares for $215 Million
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***** Moderator's Note *****
I would really like to know how Comcast has the gaul to list
Goodwill 14,889 14,928 (in Millions)
... on their balance sheet. I _might_ believe it was a valid entry if it showed a negative number, but to make such a Blue Sky claim just boggles my mind.
^^^^ Nit: Your spell checquer mis-led you. The correct spelling is 'gall'.
It isn't a Blue Sky claim -- it's a real, _auditable_ number.
The explanation is *really* quite simple -- the word doesn't mean what you think it does.
"Goodwill" is a 'term of art' in the accounting trade. It is the part of the price you pay for acquiring an existing business, that is _in_excess_of_ the value of the physical assets you are acquiring.
This is a recognition of the fact that the existing customers of a business are 'probably' going to continue to do business with the company, even though it has been bought by 'somebody else'. There is a 'value' to that future stream of revenue (sales) -- that 'value' comes from the work done _before_ the company's purchase, by the 'then' owners (now the 'seller') of the company. Thus, they deserve compensation for that work, and since the buyer is the one that will reap the (eventual) benefit of that work, the buyer gives money to the seller as that compensation.
BUT, you have to 'account' for it on the books, "somehow". So, that money spent is 'set off' against the acquisition of an 'intangible asset' called "good will".
Because it's an 'intangible', it doesn't wear out, it doesn't become obsolete, etc. And, therefore, it is stuck on the 'books', _forever_. Because of that, it bears no relation to 'reality' in any way.
***** Moderator's Note *****
I'm not an accountant, so this is a layman's view.
I thought "Blue Sky" was the accounting term applied to intangibles such as "good will". If that's not correct, let me know.
I also thought that the purchase price of a company, above the book value of the assets, had to be listed as a long term investment and discounted (as John Levine said) over some period of time. Is that correct?
That was true, until SFAS 142 ("Goodwill and Other Intangible Assets") came into effect. SFAS 142 replaced the old system of scheduled amortization of goodwill with a new system of "impairment testing". Instead of assuming that the goodwill is automatically worth less over each successive year, the new system requires companies to determine the value of the business to which the goodwill is attached, both regularly and when management becomes aware of events which are likely to have a material negative impact, and make adjustments when they determine that the goodwill has been "impaired". The company's management is given a reasonable amount of latitude in how they actually figure out the value of a business; obviously, if it is being closed down, or sold for a loss, then they must write off the goodwill that this represents. (There are some weird circumstances in which you can even get "negative goodwill" in a business, which as I'm not an accountant I don't pretend to understand.)
Pretty much every U.S. public company's annual report on SEC form 10-K will include an explanation of this, and describe how management determined the value of business, if they took an impairment charge.
Blue sky is a (disparaging) term that applies to numbers 'pulled out of thin air', without any factual basis. A low-grade 'guesstimate', if you will. E.g. "expected" revenues from an entirely new product line, unrelated to any of your prior products, and for which you have no actual expressions of buyer interest.
For many intangibles, their _current_ value is a 'blue sky' number, because there isn't any 'hard data' valuation available.
On a balance sheet, however, 'good will' is a hard fact value -- it is the actual amount of $CURRENCY that was paid out for that reason in an acquisition.
It is not an 'investment', long-term or otherwise. It is carried on the books as a purchased 'asset'. Some kinds of assets have a (predicted by actuaries) expected life-span -- e.g. buildings, machinery, etc., and are subject to 'depreciation' (to reflect the part of their 'useful lifetime' that is "used up" each year), an "operating expense" item that reduces the 'book value' of the item year by year. Other kinds of assets, e.g. real estate (the land itself, not the 'improvements' on it) do not depreciate per se. They end up carried on the books, 'in perpetuity' as it were, at the price originally paid for them.
As of 2001, goodwill 'amortization', previously on a 40-year straight-line schedule, _ceased_. There are provisions for accounting for 'impairment' (if any) of existing good will, and then writing down the asset value correspondingly. Lacking such 'impairment', the asset stays on the books (at full value) in perpetuity. The way the valuation is done, it is virtually impossible to eradicate _all_ the recorded goodwill, so the entry never entirely disappears. "Messy" is far too polite a term for the details of the whole process -- and the longer the period since the acquisition, the worse it gets.