The value of goodwill is influenced by several key factors, which can be summarized as follows:
* Nature of Business: Businesses engaged in the production of high-value products or those with stable and consistent demand tend to generate more profits. Consequently, such firms typically possess a higher level of goodwill.
* Location: The geographical location of a business can significantly impact its goodwill. A centrally located business or one situated in an area with heavy customer foot traffic is likely to have a greater goodwill value.
* Efficiency of Management: Well-managed businesses often achieve higher levels of productivity and cost-efficiency. This efficient management translates into increased profits, thereby contributing to a higher valuation of goodwill.
* Market Conditions: The competitive landscape and market conditions play a vital role in determining goodwill. Firms operating under monopoly conditions or facing limited competition often have the opportunity to earn substantial profits, resulting in a higher goodwill value.
* Special Advantages: Businesses that enjoy special advantages, such as exclusive import licenses, access to low-cost and reliable electricity, long-term contracts for essential materials, established collaborations, and ownership of patents and trademarks, are positioned to command a greater value of goodwill.
CHANGE IN PROFIT SHARING RATIO DOES NOT AFFECT THE VALUE OF GOODWILL. |
