Factors Affecting Value Of Goodwill

There are many factors that affect the valuation of goodwill. They are as follows:

1. Location

The business located in a suitable place commands more goodwill than others.

2. Capital

The more, the capital of business, the more chance of goodwill. A firm with a high debt will have to pay more interest from profit of the firm and naturally goodwill will be less.

3. Nature Of Business

Nature of business is another factor that affects the value of goodwill. A firm with a constant sales has more chance of earning profit and naturally goodwill too.

4. Efficient Management

A good management brings more profits to the business. Increase in the value of goodwill is the result of efficient management.

5. Contract

Firm may enter into a contract of sales for long period. A firm can make more profit on sale of goods on that contract by making purchase on reasonable terms. This lead to increase in the value of goodwill.

6. Patent Right

A firm having patent right for production of goods can earn more goodwill than others.

7. Quality Of The Product

A firm producing qualitative products can easily have name and fame in the market. This lead to increase in the value of goodwill.

8. Government Patronage

The product of an enterprises will be more demand, when it is patronized by government. As a result, the goodwill increases.

9. Other Factors

Besides the factors mentioned above, money market condition, peace in the country, government's policy, tendency of profit etc. also affect the value of goodwill.

Related Topic
Meaning Of Goodwill And Need For Valuation Of Goodwill

1 comment:

  1. Thnq so much it's really very helpful to clear my concepts related to factors affecting goodwill........

    ReplyDelete