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Goodwill and Amortization Charges
Investing Lesson 4 - Analyzing an Income Statement
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Introduction
Income Statement
Revenue / sales
Cost of Goods Sold
Gross profit
Gross margin
The first three lines
Operating Expenses
R&D Expense
SG&A Expense
Goodwill Charges
Extraordinary Events
Accounting for extraordinary events
Oper. income/margin
Interest income and expense
Interest coverage ratio
Depreciation expense
Accum. Depreciation
Straight-line Method
Accelerated and Sum of the Years' Digits Method
Dbl Declining Balance
Comparing Depr. Mths
EBITDA
Income taxes
Minority Interests - cost, equity, and consolidated methods
Unreported earnings
Continuing operations
Accounting changes
Preferred dividends
Net income applicable to common shares
Net profit margin
Basic vs. Diluted EPS
Hiding share dilution
Share repurchases
Return on Equity- ROE
Asset turnover
Return on Assets- ROA
Projecting earnings
Formulas & Calculations
Putting it together

Segment 2

Related Resources
Investing Lesson 1
Investing Lesson 2
Investing Lesson 3
More Lessons
From Other Guides
Goodwill on the Balance Sheet
Goodwill Amortization Tables
Elsewhere on the Web
Goodwill's Real Value
Goodwill Amortization Charges Fireworks
Purchase and Pooling Goodwill Amortization Headaches

Goodwill and other Intangible Asset Amortization Charges
In the past, companies were required to charge a portion of goodwill to the income statement, reducing reported earnings. For all good purposes, these charges were ignored by the investor. In June 2001, the Financial Accounting Standards Board (FASB) [the folks who make accounting rules in the United States], changed the guidelines, no longer requiring companies to take these amortization charges. If the company, through cash-flow analysis and other means, determines that the goodwill is impaired [meaning it's not worth the value it's carried at on the balance sheet], management will announce a write-down and reducing the carrying value of the goodwill. Intangible assets that do not have indefinite lives [such as patents] will continue to be amortized.

The complexities of goodwill and goodwill amortization charges were explained in detail in the Goodwill section of Lesson 3: Part 23.

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