Re: Borland Balance *** + Goodwill

I am not a specialist in finances but normally able to read a balance
***. But the order of magnitude of the "Goodwill" is very high!
Has somebody background on that?

If you buy a company and pay a price greater than value of the physical
(tangible) assets, then the difference between the price and the tangible
asset value is deemed to be an "intangible assets"

If you bought the Coca-Cola company you would pay more than the tangible
asset value since the brand name has a very high (albeit intangible) value.
In the case of software company acquisitions, the accumulated source code
base is an intangible asset (you can't trade software by the bushel..)

Intangible assets do not keep their value for ever, (source code has a
limited usable life span), so the acquirer of a company is obliged to
declare such assets on its balance *** under the generic term "goodwill",
and it is expected to write down that value to zero over a predetermined
number of years.

The fact that CG has goodwill on its books probably means that Borland made
past acquisitions including source code, and in the carve out, some of these
acquired assets were assigned on to CG.

Unfortunately people often think that the word "goodwill" has a positive
ring to it, and is therefore a "good thing". But actually having "goodwill"
on your books is usually bad news, since you are obliged to divert cash from
investments in order to compensate for the write down of the asset
concerned; so it is a drain on CG's cash flow that means they will have less
"real" money to spend on doing new things...

AndrewFG


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