Tavagapedia

Net worth



Key Takeaways

  1. The net worth is the total value of the assets owned by an organization or a person minus the liabilities.
  2. Net Worth = Total Assets – Total Liabilities
  3. If the net worth of a company is rising, that means the company’s profitability is increasing, and financial health is also improving.

Net worth is the value of assets minus liabilities. It measures the worth of an entity, which can be individuals, corporations, partnerships etc.

Net worth meaning

The net worth is the total value of the assets owned by an organization or a person minus the liabilities. In other words, in simpler terms net worth what is owned by a person excluding what is owed by him\her. There are two types of net worth, positive net worth and negative net worth. When the value of the assets owned is higher than the liabilities, then it is known as positive net worth. Negative net worth is opposite of that. A negative net worth value of liabilities is higher than owned assets. Net worth can be increased by either reducing the liabilities or by increasing the assets while liabilities owed remain constant.

Net worth examples / Net worth formula / what is a net worth formula

Net Worth = Total Assets – Total Liabilities

For example, an ABC person has a total assets of Rs.1,00,000 and liabilities Rs.25,000, then his net worth would be Rs.1,00,000 – Rs.25,000 = Rs.75,000.

Net worth of a company

In business for a company, net worth can be described as equity. The balance sheet is considered a net worth statement. Net worth is used to get a complete picture of business finances. By using a net worth business or a company can estimate their financial health and performance as it includes assets and liabilities because only profit could not tell any growth. Companies can track their net worth by keeping records. If the net worth of a company is increasing, that means the company’s performance has improved, and it is growing. If the net worth is decreasing, that means the company has to make a lot of changes to bring it back to its original track. Net worth gives a positive perspective on debt. If a company has more significant debts, but its assets are even larger than debts, it can still be said that the company is in good financial health. Its assets are enough to cover its financial obligations. But a company’s assets are smaller than its liabilities, and then the company needs to change its debt management. Net worth is an indication of the business’s stability.