AndrewFG wrote: > When one acquires a company they usually pay more than "book value", > this being the value of tangible assets like cash, inventory, buildings. > The premium that one pays over book value is called "goodwill", this is > the buyer's estimation of what they percieve to be the extra value of, > (or what they are prepared to pay for), all the intangible assets such > as key personnel, brand names, trade marks, patents and customer > loyalty. Book value is like hardware (any accountant can add it up), > whereas goodwill is more like vaporware (beauty is in the eye of the > beholder). > > In the deal, the acquirer effectively reduces the amount of cash > (retained earnings) on its balance sheet by the amount of money it paid > to the prior owner, but it compensates this by adding back both the book > value and goodwill of the acquired company; these three (cash-, book > value+, goodwill+) all cancel out, but they appear under different > headings in the balance sheet. The difficulty is that the goodwill > amount is really a virtual number not reflecting any hard assets, and > investors, lenders and regulators tend to penalize companies having too > high a proportion of goodwill on their books. Therefore companies are > obliged to depreciate it (write it off) over a period of time. But this > depreciation has a negative impact on real profits, so companies do the > depreciation but try to stretch out the process as long as (legally) > possible. > > Now the crux of the matter is, if you buy a company and pay a high > amount of goodwill, and then sell it again later with a low amount of > goodwill, then you are obliged to immediately write off the missing > goodwill from your books. This cuts immediately your profit in that > fiscal year by the same amount. And no investor likes that. > > I don't know if Logitech bought Slim Devices with an over- > optimistically high amount of goodwill (but I suppose so). In that case, > rather than re-selling their acquisition and being forced potentially to > take an immediate hard profit hit, the management may prefer not to > re-sell the acquisition, and thus not to take a hard profit hit. That > way you avoid upsetting your investors. Although, probably 20% of the > investors are canny enough to see that the two options (re-sell and take > the hit, or don't re-sell and put off the hit) are essentially the same. > But the difference is that in one case you upset 100% of the investors, > whereas in the other one you only upset the 20% who are canny...
But can Logitech make a profit with the UER alone? If they don't they would lose less if they sell what they can sell? ------------------------------------------------------------------------ signor_rossi's Profile: http://forums.slimdevices.com/member.php?userid=11941 View this thread: http://forums.slimdevices.com/showthread.php?t=96466 _______________________________________________ discuss mailing list [email protected] http://lists.slimdevices.com/mailman/listinfo/discuss
