Net worth is the measure of a company’s or individual’s actual worth, accounting for assets as well as debts. The net worth of a company or individual is simply their assets minus their liabilities, or the value of the things they own minus the amount of debt they have.
Examples of assets that impact the calculation of a company or individual’s net worth could include real property, commercial property or equipment, vehicles, investments, retirement plans, and other financial assets. Conversely, examples of debts that affect net worth include credit card debt, medical debt, business debt, debt from personal loans, student loan debt, tax debt, debt related to alimony or child support, and additional sources of debt.
How to calculate net worth:
Net Worth = Total Assets – Total Liabilities
For accounting purposes, what does net worth mean? Used as the primary indicator of the value of a company, net worth provides insights into investment successes and failures and can be indicative of the financial health of a company or individual.
Prior to investing in a company, it is wise to examine the business entity’s net worth, ideally comparing current data to information from previous years. This information can benefit potential investors by shedding light on key questions such as whether the company’s performance is improving or declining over time. Additionally, knowing a company’s net worth ensures that the entity’s debts – not just its assets – are taken into consideration.