In simple terms, specialists have come up with the definition of badwill and they have clearly said that badwill in easy words means a negative difference which is usually created when the book value of a company is differed with the original price which is to be paid. In this way the loss and profit relationship can be easily calculated.
Comprehension of badwill
Economists and finance specialists have come up with the highly comprehended definitions and explanations of the term badwill. Many simple terms and definitions have been used to define this term and explain it so that a lay man can understand the original meaning of the term. There are many other ways to define this term. In fact the term badwill is the antonym of goodwill. It is also called as the negative goodwill.
Correlation of badwill and goodwill
This situation usually arises when the individual pays the price for the company which is written in the balance sheet. It is also called as the book value of the company. Therefore the term badwill is often similarized with opposite of goodwill. There are many reasons which may lead to the situation that the goodwill changes into negative goodwill or simply badwill . Usually the causes of the arising of negative goodwill are not at all reflected in the balance sheet.
Causes of negative goodwill
Usually the most obvious and probable causes for the occurrence of negative goodwill arise because of the future claims. Usually no provisions are taken for the balance sheet difference phenomena or expectations. Usually if a buyer offers a low bid, this ay also become the indirect reason for the negative goodwill. Another cause which possibly comes into light is the bad reputation or the damage caused to the reputation and this is the major factor of arising of a negative goodwill.
Usually it so happens that the companies may acquire damage in their reputation and it becomes less likely for the customers to buy the products of that company on the balance sheet. As a result the value and hence reputation of the company is hampered and its graph of sales and profits is lowered down.