Goodwill Impairment and ROE

[pranav.gaur]

Hi Guys
Lines 7-10, Pg 307, Schweser Dec’11, Book 3 Level 1, SS 10, Reading # 43 -
“Impairment of goodwill does not impact cash flows but does affect certain financial ratios. In periods after write downs, ratios such as ROA, ROE and asset turnover will improve because the denominator will reduce”
I understand ROA and Turnover, how does it impact ROE? Goodwill impairment will hit your Income statement. Does this statement mean “goodwill impairments” are adjusted against equity?
I haven’t seen any mention of such adjustment anywhere else and got confused. Any suggestions how does goodwill impairment impact ROE?

 

[parott]

you are right that impairment will effect the bottom line (i.e. net income) and therefore the retained earnings as well (i.e. equity). thus the impairment will impact ROE ratio through the reduction of the denominator

 

[pranav.gaur]

thanks!

 

[wake2000]

word?