ABSTRACT
In the previous chapter, we have introduced the concepts of business goodwill and corporate goodwill, which are basic elements in the breakdown process of overall internally generated goodwill. To continue the analysis and propose other breakdown methods, for both business and corporate goodwill, it is necessary to take a closer look at competitive dynamics, which so far have been treated only superfi cially. The goodwill phenomenon is directly connected to the abnormal earnings obtainable by the enterprises over periods of time that can also be very long (Chapter 1). According to the economic theory, profi t consists of the share of revenue that results after all productive factors have been remunerated at market prices, i.e., according to their opportunity cost, risk capital included. The opportunity cost can be defi ned as the least consideration that each provider of resources expects to receive from an enterprise for its contribution. Assuming, for the sake of theoretical simplicity, that an enterprise remunerates at market conditions all resources that have been acquired subject to a contractual obligation (i.e., according to their opportunity cost), including debt capital, the issue of economic profi t would boil down to measuring the return on equity. A normal return on risk capital depends on the level of risk that can be associated with its use. In other words, the cost of equity is equal to the return expected from the investors, given that their expectations form on the basis of the risk taken on with the investment, that is, based on the uncertainty that characterizes future expectations. All in all, according to standard operating criteria, the calculation of abnormal earnings basically consists of comparing the actual return on capital with the return considered normal, given specifi c risk conditions: economic profi t and, consequently, goodwill depend on the relevance of the spread between profi tability and cost.1
