§ 01
Internally developed intangibles (like R&D) are expensed under U.S. GAAP and never appear on the balance sheet. Acquired intangibles are capitalized at purchase price. Two identical assets get wildly different treatment depending on whether they were built or bought.
§ 02
| Treatment | Internally Developed | Acquired |
|---|---|---|
| Balance Sheet | Not recognized (expensed as R&D) | Capitalized at fair value |
| Income Statement | R&D expense reduces current income | Amortized over useful life |
| Example | $800M drug development → expense | Same drug bought for $2B → asset |
| Impact on ROA | Lower assets → higher ROA | Higher assets → lower ROA |
§ 03
Search for a company that has made large acquisitions (tech and pharma are prime sectors). Find Goodwill on the balance sheet and express it as a percentage of total assets. Above 30% means heavy acquisition dependence.
§ 04
A company has $45B in total assets, of which $18B is goodwill. What percentage of the balance sheet depends on acquisition values holding up?
§ 05
§ 06
Company X acquired Company Y for $500M. Y's book value: $300M. Intangibles + goodwill recorded: $200M. Ten years later, what happens if Y underperforms?
Five questions · AI feedback
Sit with the ideas.
A telecom company has $45B in total assets, of which $18B is goodwill from a decade of acquisitions. This year, it records a $6B goodwill impairment charge. Net income before the charge was $4B. What should an analyst conclude?
Why: