Lesson 5 of 11
Bought, and never built
Kraft Heinz carried $56,344 million of goodwill and brands, 69 percent of its assets. A company that built the same brands would carry nothing at all.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- A brand that was bought appears on the balance sheet. The same brand, built internally, appears nowhere.
- Goodwill is not an asset anyone can point at. It is the part of a purchase price that could not be assigned to anything identifiable.
- The asymmetry means book value is not comparable between an acquisitive company and an organic one, and price to book is the ratio it breaks.
Two companies own equally valuable brands. One bought them and one built them. Their balance sheets are not remotely similar, and neither is wrong.
This is the single largest reason book value means different things at different companies, and it is worth understanding before any ratio built on book value is used.
Kraft Heinz: what share of the balance sheet was paid for
- Indefinite-lived intangibles, mostly brands$34,165m42%
- Goodwill$22,179m27%
- Everything else · total assets 81,786$25,442m31%
Total$81,786m
The rule that creates the gap
Spending that builds a brand is advertising, and advertising is expensed as it is incurred. Spending that builds a technology is research and development, and most of that is expensed too.
Buying the same brand or the same technology is an acquisition. The rules require the buyer to identify what it acquired, value each item at fair value, and put those values on its balance sheet.
So an identical capability is an asset in one company and an absence in the other, and the difference is entirely how it was obtained.
Goodwill is a residue, not a thing
When a business is bought, the price is allocated across everything identifiable: inventory, equipment, brands, customer relationships, technology, and the liabilities assumed. Whatever is left over is goodwill.
That residue is sometimes described as the value of synergies or of an assembled workforce. It is more precisely described as the part of the price the valuation exercise could not attach to anything specific.
Goodwill is not amortised. It sits at cost until an impairment test reduces it, which means it can only ever fall.
What the two filings show
Kraft Heinz's fiscal 2025 10-K, filed on 12 February 2026, reports goodwill of $22,179 million (The Kraft Heinz Company FY2025 10-K, accession 0001637459-26-000009) and indefinite-lived intangible assets of $34,165 million (The Kraft Heinz Company FY2025 10-K, accession 0001637459-26-000009) at 27 December 2025, against total assets of $81,786 million (The Kraft Heinz Company FY2025 10-K, accession 0001637459-26-000009).
Together that is $56,344 million, or 68.9 percent of the balance sheet. Equity was $41,664 million, which is less than the goodwill and brands alone.
At the end of fiscal 2017 the same two lines were $44,825 million and $53,655 million against total assets of $120,092 million, which is 82.0 percent. The share fell because of impairments, not because the company sold anything.
What it does to a ratio
What to do about it
Two habits, and the first is more useful than any adjustment.
Read book value as a record of what was paid, never as a measure of what is there. That single sentence resolves most of the confusion around price to book and around return on equity at acquisitive companies.
And when comparing two companies, look at return on tangible capital alongside return on equity. It is not a better measure, it is a different one, and the gap between them tells you how much of the balance sheet is a record of past purchases.
Check yourself
A company spends $600 million building a brand over twenty years. Where does it appear on the balance sheet?
- As an intangible asset of $600 million
- Nowhere. Advertising is expensed as incurred, so a built brand is never recorded
- As goodwill
Show the answer
Answer: B.
Only purchased intangibles are recorded. The identical brand acquired in a deal would be valued and capitalised, which is the asymmetry this lesson is about.What is goodwill?
- The reputation of the business
- The part of a purchase price that could not be assigned to any identifiable asset or liability
- The expected future profit of an acquisition
Show the answer
Answer: B.
It is a residue from an allocation exercise. Descriptions in terms of synergies are interpretations of that residue rather than what it is.Two identical businesses, one grown by acquisition and one organically. What does the acquirer show?
- Higher return on equity and a higher price to book
- Lower return on equity and a lower price to book, from the larger book value
- Identical ratios
Show the answer
Answer: B.
The purchase price sits in equity as goodwill and intangibles. The same profit over a larger denominator is a lower return, and the same price over a larger book is a lower multiple.Sources
- The Kraft Heinz Company, FY2025 Form 10-K, filed 12 February 2026, accession 0001637459-26-000009, for goodwill, indefinite-lived intangible assets, total assets and equity at 27 December 2025.
- The Kraft Heinz Company, FY2018 Form 10-K, filed 7 June 2019, accession 0001637459-19-000049, for the same lines at 30 December 2017.
- ASC 350, Intangibles, Goodwill and Other, on recognition of purchased intangibles and the prohibition on recognising internally generated goodwill.
- ASC 720, Other Expenses, on expensing advertising costs.
What this leaves out
- The Kraft Heinz figures are history, read from the filings named. They are not a statement about the company today and not a view on any security.
- The two-company table uses invented round numbers so both sets of ratios can be checked by hand. The price of 1,600 is an assumption used to make the multiple computable and is not a valuation of anything.
- Finite-lived intangibles such as customer relationships are amortised and behave differently from the indefinite-lived brands described here.
- Return on tangible capital has its own construction choices, and two sources computing it will often disagree.