How does Budget assess goodwill for impairment?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill represents the excess, if any, of the fair value of the consideration transferred by the acquirer and the fair value of any non-controlling interest remaining in the acquiree, if any, over the fair values of the identifiable net assets acquired. We do not amortize goodwill, but assess it for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amounts of their respective reporting units exceed their fair values. We perform our annual impairment assessment in the fourth quarter of each year at the reporting unit level. We assess goodwill for such impairment by comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. When appropriate, comparative market multiples and other factors are used to corroborate the discounted cash flow results.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, goodwill, which represents the excess of the fair value of consideration transferred over the fair values of identifiable net assets acquired, is not amortized. Instead, Budget assesses goodwill for impairment at least annually, specifically in the fourth quarter of each year, and also whenever events or changes in circumstances suggest that the carrying amounts of the reporting units exceed their fair values. This assessment is conducted at the reporting unit level.
To assess goodwill impairment, Budget compares the carrying value of each reporting unit to its fair value. The fair value is determined using the present value of expected future cash flows. To ensure accuracy and reliability, comparative market multiples and other relevant factors are used to corroborate the discounted cash flow results. This approach ensures that the goodwill is appropriately valued and that any potential impairment is promptly recognized.
For a prospective Budget franchisee, understanding this assessment process is crucial because it reflects the financial health and stability of the brand. Impairment charges can affect the company's profitability and overall financial position, which in turn could impact the support and resources available to franchisees. Therefore, it is beneficial for potential franchisees to monitor Budget's financial statements and be aware of any significant impairment charges, as these could signal underlying issues within the company's operations or brand value.