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I haven't gone though the previous annual reports to hunt for goodwill charges, but the 2011 annual report indicated that their acquisitions didn't indicate impairment and were valued over what they paid. I guess this means that on some level they are acquiring and managing the acquisition process well????

Don't confuse goodwill with over or underpaying. Goodwill is just a balance sheet issue. When they cram the two companies' balance sheets together, any money paid above the book value of the company has to go to go on as something. So, they put it on as goodwill.

A company can sell for much, much more than its book value and still be a great purchase. Some companies are asset light and have a lot of intangible value. A software company might be an example. Much of their IP won't show up on the sheets. Another example might be a cash producer that's asset light. It's cash flow might justify a much bigger number than its book value. So, don't look at goodwill as a bad thing, necessarilly. For some companies and some acquisitions, book value is pretty unimportant. You're right though, that later impairments of goodwill are a bad indicator.

The focus on good or bad is more complex. You really need to step back and take a look at the bigger picture: why they bought the acquisition, what they anticipated it would provide, and if that outcome came through as expected. Some companies are very good at repeatedly scoring good buys and driving growth that way.

On the flip side of the negative, they can probably buy up companies on the cheap if they are not positioned well or have the balance sheet to handle the ups and downs. Thoughts?

Exactly. That's what Berkshire does. They pair their high cash flow insurance businesses with old economy businesses that are very profitable when protected by Berkie's balance sheet. A company with large capital needs can get buried by debt, since their cost of capital is becomes too high. Berkshire's cost of capital is low, so they can funnel cash to those subsidiaries and make them more profitable than they would be on their own. And of course, with that strong balance sheet they can bail out weaker companies or buy them outright when the economy is down.

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