Firms are required to impair goodwill if its value is deemed to be less that the amount of the balance sheet. But firms are sometimes late in doing so. A clue for likely impairment: The firm’s price-to-book ratio is less than 1.0 while its goodwill number is a high component of book value.
In early 2025, Warner Bros. Discovery, the parent company of CNN, traded at a market capitalization of $25.1 billion on book value of $35.1 billion, a P/B of 0.72. But, in its latest quarterly report, goodwill alone was booked at $25.9 billion with another $33.8 billion in intangible assets. Looks like goodwill and those intangibles might be due for impairment?
At the same time, CVS Health Corporation, traded at $70.1 billion on book value of $74.9 billion, a P/B of 0.94. Goodwill was recorded at $91.3 billion. Get ready for an impairment?
The Kraft-Heinz Company traded at a market cap of $35.6 billion on book value of $49.5 billion with goodwill contributing $30.5 billion to that book value. An imminent impairment?
Topgolf Callaway Brands with a market cap of $1.5 billion and a book value of $3.9 billion, a P/B of 0.38 after a drop in its stock price of 42% over the past 12 months. It carried goodwill at $2.0 billion on its balance sheet.
By February 2025, the stock price of Sunrun Inc. had declined 45% over the past twelve months to a P/B of 0.37. Goodwill was 59% of that low-priced book value.
In all of this, we must be careful: A P/B ratio might be low because the market is underpricing the firm. But high recorded goodwill with low or declining performance waves a red flag.