By comparison, investors buy and sell technology companies on the stock market for about 4.1 times book value. If a deal doesn't work out, all that goodwill is worth less, and the earnings of the combined companies can be cut deeply. The price Microsoft is offering is 50 percent more than what investors had judged LinkedIn shares were worth before the deal. Yes, it's that vague, that subjective, that iffy — and investors don't really mind, except when it goes bad. Goodwill is the value placed on the intangible, special something about the company being bought — its reputation, perhaps, or its skilled workforce or corporate culture.

Source: ABC News July 01, 2016 10:07 UTC