Partial Goodwill Method

CFA Level II Portfolio Management
#1

Why does D/E is higher for partial goodwill method vs. full goodwill method? I think I will have to re-read the section because I still do not get this.

Thanks in advance for your help

#2

Full Goodwill will have greater asset value relative to Partial GW, which will result in lower equity for Partial Goodwill.

Lower Equity = Higher D/E

#3

Perhaps more clearly:

  • Full goodwill gives higher assets and the same liabilities, so higher equity
  • Partial goodwill gives lower assets and the same liabilities, so lower equity