Net worth

For the 1995 hockey film, see Net Worth (1995 film). For the 2000 film, see Net Worth (2000 film).

Net worth (sometimes called net or wealth) is the total assets minus total outside liabilities of an individual or a company.[1] Net worth is used when talking about the value of a company or in personal finance for an individual's net economic position.[2]

Put another way, net worth is any asset owned minus any debt owed. Net worth can be a negative number if one's debt owed is greater than the value of the assets owned.

Companies

Net worth in business is generally based on the value of all assets and liabilities at the carrying value which is the value as expressed on the financial statements. To the extent items on the balance sheet do not express their true (market) value, the net worth will also be inaccurate. On reading the balance sheet, if the accumulated losses exceed the shareholder's equity, it is a negative value for net worth.

For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time.

Net worth in this formulation is not an expression of the market value of the firm: the firm may be worth more (or less) if sold as a going concern.

Individuals

For individuals, net worth or wealth refers to an individual's net economic position. Similarly, it uses the value of all assets (long term assets) minus the value of all liabilities. Examples of assets that an individual would factor into his or her net worth include retirement accounts, other investments, home(s) and vehicles. Liabilities include both secured debt (such as a home mortgage or vehicle loan) and unsecured debt (such as consumer debt or personal loans). Typically intangible assets such as educational degrees are not factored into net worth, even though such assets positively contribute to one's overall financial position.

In relation to a deceased individual, net worth can be used for the value of an estate when in probate.

See also

References

  1. ↑ http://www.investopedia.com/terms/n/networth.asp
  2. ↑ http://www.investorwords.com/3267/net_worth.html

External links


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