Cash Generating Unit (CGU)

The level at which goodwill is tested for impairment under US GAAP (ASC 350), defined as an operating segment or one level below an operating segment (a component). A component is a reporting unit if it constitutes a business for which discrete financial information is available and segment management regularly reviews its operating results.

The mandatory annual assessment (and more frequent assessment when indicators exist) of whether the carrying amount of goodwill exceeds its recoverable amount. Under IAS 36, goodwill is tested at the cash generating unit level by comparing the unit's carrying amount (including allocated goodwill) with its recoverable amount.

The cash a company generates from operations after deducting capital expenditures. FCF represents the cash available to pay dividends, reduce debt, or reinvest in the business, and is a key input in discounted cash flow valuations.

Cash flow adjusted to remove non-recurring, extraordinary, or owner-specific items to reflect the sustainable earnings capacity of a business under normal operating conditions. Normalisation adjustments commonly include removing one-time restructuring charges, above-market owner compensation, related-party transactions, and non-operating income.

A valuation method that estimates the present value of a company based on projections of its future free cash flows, discounted back to today at the cost of capital. DCF valuations are sensitive to growth assumptions and are often used alongside multiples-based approaches.

A non-cash charge recorded when the carrying value of goodwill on the balance sheet exceeds its estimated recoverable amount. Goodwill impairment testing, required annually under IFRS and US GAAP, often signals that the intangible value anticipated at the time of acquisition — including synergies, customer relationships, and growth potential — has not been realised.

The process of determining the period over which an intangible asset is expected to contribute to the cash flows of an entity, which governs the amortisation period under IAS 38 and ASC 350. Useful life may be finite (based on contractual, legal, regulatory, technological, or economic factors) or indefinite (when there is no foreseeable limit to the period over which the asset will generate net cash inflows).

A reduction in the reported value of an asset on the balance sheet, typically triggered by impairment testing that reveals the asset's carrying amount exceeds its recoverable amount. Goodwill and other intangible asset write-downs often signal that the expected future benefits from a prior acquisition or investment have not materialised.

What is Customer Lifetime Value (LTV)?

LTV is the total profit a company expects to generate from a customer relationship over its lifetime — calculated as (ARPU × Contribution Margin) / Monthly Churn.

What is the LTV:CAC ratio and what is healthy?

The LTV:CAC ratio compares lifetime customer profit to acquisition cost. A ratio of 3:1 or better indicates healthy unit economics; below 2:1 suggests unsustainable growth.

What changed with ASU 2017-04 for goodwill impairment testing?

ASU 2017-04 simplified US GAAP goodwill impairment testing by eliminating Step 2 — companies now measure impairment as the excess of carrying amount over fair value of the reporting unit, without needing a hypothetical PPA.

What is the accounting treatment for intangible assets with indefinite useful lives?

Indefinite-life intangible assets are not amortised but must be tested for impairment at least annually under IAS 36. They include certain brands, trademarks, broadcasting rights, and perpetual licences with no foreseeable expiration.