Explanation of Goodwill:

Goodwill is listed on the Balance Sheet, and is the estimated value of intangible assets of a company.  Intellectual property such as brand name trademarks, patents, and copyrights are all often listed as Goodwill. 

Importance of Goodwill:

Goodwill is vitally important to companies that rely on conducting business using their intellectual property.  Consumer goods companies often have a large amount of assets listed as Goodwill, as they spend aggressively to obtain and guard their patents and trademarks for their popular consumer brands.  Goodwill has in the past been used as a way to prop up the value of companies by overestimating the value of their goodwill assets.  Checking the percentage of Goodwill to Total Assets is a way to keep a watch on the company's management of Goodwill, and any major changes in Goodwill should be explained in the accompanying notes to the financial statements.

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