Why Debt to Equity ratio is lower with Full Goodwill?

[jal1003]

If you think about it, full goodwill have a higher depreciation which means lower net income which means lower retained earning which means lower stockholder’s equity which means higher debt to equity ratio. I am aware that the minority interest is higher under full good will but how do you know which one will offset which one? Am I making sense? Please let me know.
Thanks in advance.

 

[june2009]

As I understand it…
full goodwill = higher assets
without any change in debt, equity must be higher
Debt/Equity is lower
the goodwill isn’t depreciated, but tested for impairment, so I don’t see how depreciation is higher under full goodwill

 

[chowder]

“the goodwill isn’t depreciated, but tested for impairment, so I don’t see how depreciation is higher under full goodwill”
^ right– but the excess purchase price over FV is subjected to amort/depreciation- so NI goes down- equity goes down– debt is not affected, so equity is LOWER and debt/equity goes up..

 

[idreesz]

chowder Wrote:
——————————————————-
> “the goodwill isn’t depreciated, but tested for
> impairment, so I don’t see how depreciation is
> higher under full goodwill”
>
> ^ right– but the excess purchase price over FV is
> subjected to amort/depreciation- so NI goes down-
> equity goes down– debt is not affected, so equity
> is LOWER and debt/equity goes up..
The calculation is done on the day of acquisition. In that case debt/equity is lower because equity is higher in Full Goodwill because both goodwill and minority interest will be higher.
Consolidated net income is the same in both full and partial goodwill. Because both assets and equity is higher, ROA and ROE will be lower in full goodwill method.