Factors Affecting the Value of Goodwill

As I have already talked about goodwill and its features now let’s look at the factors which determine the value of goodwill for a company, because goodwill increases with the increase in earning capacity of the company.

1. Efficient Management – Perhaps this is the most important thing as far as goodwill of a company is concerned, because if management is capable, it will naturally reflect on the business of the company which in turn will increase profits and goodwill of the company.

2. Location – This also has a bearing on the goodwill of the company, a company which is located at such place where it attracts more customers will have higher value of goodwill attached to it than other companies.

3. Customer Base – A company having good customer base and also whose customers are likely to return back to the company for future purchases because of higher quality provided by the company will have higher goodwill than other companies in the same industry.

4. Relationship with suppliers – If company has access to such suppliers of raw material which are reliable as well as economical than it will be an added advantage to the company as far as goodwill is considered.

Apart from above factors there can be many other factors which can affect the value of goodwill of a company, which in turn dependent on the industry in which company operates.

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