Newspapers and Goodwill

Most people think of good will as a desirable state of mind around the winter solstice holidays, no matter what you call them. But in business, goodwill is the difference between the value of a company - expressed as the value of all its stock - and the value of the firm's tangible assets. In other words, goodwill is how much investors and the market think a company is work over and above the more objective value of everything it owns. And if you count newspapers as a market, read this Bloomberg article and you may see why you should make the acquaintence of this term.

Goodwill exists because the world wants to account from where the value of a company comes. It's clear why; without financial attribution, charlatans would be free to claim any value of a company, pulling the wool over the eyes of many. The problem with goodwill is that it can be fickle. As the opinions of those in the market change, so can the goodwill, and the value - and financial solvency - of the company. Some companies, like Google, have a great deal of goodwill value. But the danger is when you see too much value in goodwill, you must wonder how stable it is.

As the article's author, Jonathan Weil, notes, many publicly-held newspaper companies have a great deal of goodwill on their balance sheets. That might mean that the values are artificially high and that companies will ahve to write down their book value, which means it will be harder for them to get credit, raise money, and do other things that will hinder their competitiveness. Here's Gannett as an example:

Even Gannett, the largest U.S. newspaper publisher, looks ripe for a balance-sheet hit. Its market value is $7.9 billion. By comparison, its $8.98 billion book value at Sept. 30 included $10.06 billion of goodwill and $818 million of other intangibles. Tara Connell, a spokeswoman for the McLean, Virginia-based company, says Gannett is evaluating the matter.

If you're going to do business with an industry, it's important to gain some financial literacy so you can see where trouble might be brewing.