- Valeant’s run of acquisitions has left it with $17.4 billion in goodwill on its books, which is now greater than the market value of the company, the Wall Street Journal reports.
- Downgraded 2016 guidance and the company’s precipitous fall in value over the past two days could push investors to judge the company’s large amount of goodwill more harshly.
- Already, Standard & Poor’s, Barclays Plc and Moody’s Investors Service have lowered their credit rating for Valeant's bonds as worries mount Valeant’s delayed 10-k filing could potentially lead to a partial default.
When it rains, it pours. Valeant's stock, once a stock market darling, is down 85% since its peak last August and 67% this year—and we're only one quarter in. The collapse in the stock’s value is prompting new questions and closer looks into the company’s financial statements and business model.
Goodwill is a measure of the value represented by the difference between what a company pays for something and the actual book value of the purchase. It is usually recorded as an intangible asset. Acquiring companies typically pay a premium when they buy another company or product. The value of goodwill is sustained by the expectations those assets will generate more cash in the future.
But, with Valeant struggling, the company may have to write-down the value of its goodwill, which could significantly change its balance sheet.
Furthermore, Valeant is the midst of trying to change its business model from growth predicated on price, to volume-based growth.