Jefferybic
03-15-2016,
So accounting Goodwill is basically the difference between market price paid for a company and the book value of it's assets. Sort of like an over payment item listed under assets on the balance sheet.
When you think of Buffett he has made all his billions mostly from economic goodwill not shown on the balance sheets - brand names etc, that have actually grown significantly in value over the years, rather than shrunk. Hence he ignores amortization of goodwill. Alot of them are businesses that operate with very little in the way of tangible assets, where in many cases a small increase in hard assets increases returns dramatically.
Also a company trading under book value is generally not likely to have much in the way of a competitive advantage. In a way, you could say that if a company makes an acquisition of another at a price of it's book value it is likely to be decreasing shareholder returns/value.
When you think of Buffett he has made all his billions mostly from economic goodwill not shown on the balance sheets - brand names etc, that have actually grown significantly in value over the years, rather than shrunk. Hence he ignores amortization of goodwill. Alot of them are businesses that operate with very little in the way of tangible assets, where in many cases a small increase in hard assets increases returns dramatically.
Also a company trading under book value is generally not likely to have much in the way of a competitive advantage. In a way, you could say that if a company makes an acquisition of another at a price of it's book value it is likely to be decreasing shareholder returns/value.