Goodwill is a term used for the recognized value of the enterprise (product or service) by the market, which increases its overall value beyond the sum of its physical assets. Simplistically interpreted as a good reputation, reputation of the company, prestige or enterprise image.
Goodwill in practice: Goodwill affects not only the value of the company at its valuation or sale, but it is also important in when selling products and services - particularly for branded or luxury goods. The value of goodwill is unstable over time and can change very quickly. In general, it is built over a long time and can be quickly lost. It has a major impact on the company’s position in the market.
Almost everything the company does affects building goodwill - it is built up with quality products and services, relationships with the public, stakeholders, by long-term social responsibility, and all marketing activities.
In accounting terms, goodwill is part of the company’s assets. Goodwill is normally included in financial statements. If so, the value of goodwill must be supported by a thorough analysis. However, the value of goodwill is most accurately reflected when selling the company, where it is assessed by the market.