Goodwill-to-Assets Ratio

Written By
Paul Tracy
Updated July 1, 2021

What is the Goodwill-to-Assets Ratio?

The goodwill-to-assets ratio describes the percentage of a firm's total assets that can be explained by the amount of goodwill on the balance sheet

How Does the Goodwill-to-Assets Ratio Work?

The formula for the goodwill-to-assets ratio is:

Goodwill to Assets = Goodwill / Total Assets

For example, let's assume Company XYZ has $5,000,000 of goodwill on its balance sheet. Its total assets are $20,000,000. Using this information and the formula above, we can calculate that Company XYZ's goodwill-to-assets ratio is $5,000,000 / $20,000,000 = 25%. That is, 25% of its total assets are in the form of goodwill.

Why Does the Goodwill-to-Assets Ratio Matter?

Increases in the goodwill-to-assets ratio might suggest that a company has been aggressively acquiring other firms or has seen its tangible assets decrease in value. When a large portion of total assets are attributable to intangible assets (such as goodwill), the company may be at risk of having that portion of its asset base wiped out quickly if it must record any goodwill impairments. Decreases in the goodwill-to-assets ratio suggest that the company has either written down some goodwill or increased its tangible assets.

Asset needs vary from industry to industry. This is why comparing goodwill-to-assets ratios is generally most meaningful among companies within the same industry, and the definition of a "high" or "low" ratio should be made within this context.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Goodwill-to-Assets Ratio.
Be the first to ask a question

If you have a question about Goodwill-to-Assets Ratio, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Goodwill-to-Assets Ratio, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Goodwill-to-Assets Ratio

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms