As a follow up to my previous post on the LinkedIn acquisition, I decided to do a quick analysis on the Goodwill that a few major companies are carrying on their balance sheets recently as compared to about ten years ago. My findings are below, and the data is quite interesting.
I selected Apple, Microsoft, J&J, and Amazon to analyze because they all have very large market caps. As you can see from the data, all of these firms are now carrying a higher percentage of their Total Assets as Goodwill compared to the year 2005. I then calculated the results for Berkshire Hathaway as I suspected they would have a similar percentage compared to 2005. Indeed, Berkshire Hathaway has NOT increased their Goodwill percentage on the balance sheet compared to 2005. It remains roughly the same. I speculate that Berkshire Hathaway is different from the other companies because they have historically done such a great job of valuing acquisitions and eventually realizing their value. Although each of these firms indicates that they check for Impairments on Goodwill at least yearly, it would be interesting to see if this Goodwill trend is persistent throughout all S&P500 companies. Perhaps companies will soon have impairment expenses that bring these percentages back down to historical norms. As mentioned in my previous post, these impairment charges to goodwill could cause less-than-stellar earnings results as firms realize their acquisitions were not as beneficial as once thought.
I realize this is not a comprehensive analysis, but I wanted to post the results that I have found initially to stimulate some discussion on whether a more full research analysis should be completed.