Oracle's Balance sheet snapshot with Q2-2007 results
(http://www.oracle.com/corporate/investor_relations/2q07- pressrelease- dec.pdf)
Oracle reported a healthy financial status for this quarter. However, what intrigued me is the Goodwill of $10,682 millions posted by this Enterprise Apps and DataBase Systems major, that is even more than what it did last year.
In simple accounting terms, goodwill is the premium which acquiring company pays to acquire another company. This premium is calculated by subtracting the on book value from purchase price.
(http://www.oracle.com/corporate/investor_relations/2q07- pressrelease- dec.pdf)
Oracle reported a healthy financial status for this quarter. However, what intrigued me is the Goodwill of $10,682 millions posted by this Enterprise Apps and DataBase Systems major, that is even more than what it did last year.
In simple accounting terms, goodwill is the premium which acquiring company pays to acquire another company. This premium is calculated by subtracting the on book value from purchase price.
E.g. If company 'Please Acquire Me Inc.' has 1000 outstanding shares & market value is 10 per share. On book value of the 'Please Acquire Me Inc.' is 1,000 x 10 = $ 10,000.
Now a company 'I'm gonna eat you alive Inc.' wants to acquire 'Please Acquire Me Inc.’. How Sweet! The Board of directors approves a merger at $12 per share. So 'I'm gonna eat you alive Inc.' pays 1,000 x 12 = $12,000 to eat the other small fish.
The premium is 12000-10000 = $2000. Company will record this premium paid on its Balance Sheet as Goodwill.
Now coming back to our own Oracle Inc. balance sheet. Oracle has a whooping goodwill of 36% of its total Assets. Helluva Goodwill!
It again comes to me as no surprise giving Oracle was and is on a buying spree. Ranging from acquisition of PeopleSoft last year to Innobase recently. Guess, not only paying premium but also paying increasing amount of premium is a part of Larry's strategy. Look at what it paid last year -- $ 9,808 millions. It should be noted that every year the Goodwill gets amortized by 1/40th of its amount or in other words goodwill lasts for 40 years. However, we see a northbound change in Goodwill that implies even after amortization we end up in having an increase in Goodwill.
Let us wait until next Q to watch the Goodwill saga. Who knows Oracle may acquire something else by that time. Good going Goodwill!
Now a company 'I'm gonna eat you alive Inc.' wants to acquire 'Please Acquire Me Inc.’. How Sweet! The Board of directors approves a merger at $12 per share. So 'I'm gonna eat you alive Inc.' pays 1,000 x 12 = $12,000 to eat the other small fish.
The premium is 12000-10000 = $2000. Company will record this premium paid on its Balance Sheet as Goodwill.
Now coming back to our own Oracle Inc. balance sheet. Oracle has a whooping goodwill of 36% of its total Assets. Helluva Goodwill!
It again comes to me as no surprise giving Oracle was and is on a buying spree. Ranging from acquisition of PeopleSoft last year to Innobase recently. Guess, not only paying premium but also paying increasing amount of premium is a part of Larry's strategy. Look at what it paid last year -- $ 9,808 millions. It should be noted that every year the Goodwill gets amortized by 1/40th of its amount or in other words goodwill lasts for 40 years. However, we see a northbound change in Goodwill that implies even after amortization we end up in having an increase in Goodwill.
Let us wait until next Q to watch the Goodwill saga. Who knows Oracle may acquire something else by that time. Good going Goodwill!
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