How does the value of goodwill relate to the firm's profits?

Higher profits lead to higher value of goodwill

The value of goodwill is closely related to a firm's profits. When a firm consistently earns higher profits, it indicates that the firm has a strong reputation, brand recognition, customer loyalty, and other factors that contribute to goodwill. Higher profits are often a result of factors such as superior products or services, effective management, competitive advantages, and customer satisfaction. The ability to generate higher profits demonstrates the firm's potential to continue earning excess earnings or super profits in the future. As a result, the value of goodwill increases as it represents the present value of the firm's anticipated excess earnings.