Goodwill calculation
From the price to goodwill, through every write-up.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: goodwill calculation.Updated 2 October 2026
What it does
Goodwill is what is left of the price after everything identifiable has been valued. The allocation starts from the target’s book net assets, writes off any goodwill from its own past deals, restates inventory and PP&E at fair value, and recognises the intangibles a company that grew organically never carried: customer relationships, technology, a trade name. In a stock deal it then deducts the deferred tax liability on those write-ups, which is why goodwill in a stock deal is larger than in an asset deal by exactly that liability.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 34–41: Inventory at fair value, Property, plant and equipment at fair value, Remaining useful life of the PP&E write-up (years), Customer relationships at fair value…
- Allocation, rows 9–20: Equity purchase price, Book value of the target’s net assets, Less the target’s existing goodwill, written off, Inventory step-up…
What a reviewer looks for
- Not writing off the target’s existing goodwill.
- Leaving out the deferred tax liability in a stock deal.
- Treating an intangible the target built itself as already on its balance sheet.
Learn it, then build it
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Top Investment Banking Technical Questions (With Answer Frameworks)
Vocabulary: Goodwill, Purchase Price Allocation (PPA), Identifiable Intangible Assets, Inventory Step-Up.