What is Net Worth?
Net Worth Definition
Net worth is an estimation of the absolute monetary value of a person or business, as determined by subtracting the sum of all their liabilities from the sum of all their assets.
Net worth in either context can be positive or negative.
If net assets exceed net liabilities, then it is positive; if net debts or liabilities exceed assets then the net worth is negative.
In the corporate world, net worth is also sometimes referred to as a business’ “book value”and is effectively the same as shareholder equity.
Define Net Worth in Simple Terms
Net worth is a useful way to take a financial snapshot of an entity at a single point in time.
Companies record all of these values on its balance sheet, which is one of three essential financial statements all businesses must produce.
A high net worth for a business indicates to lenders that a company’s assets are high relative to debt, making them a more attractive candidate for receiving a loan.
Calculating Net Worth
Individuals with a significant net worth are known as high net worth individuals, and are the prime market for wealth managers since they have significant assets to invest.
An important note is that corporate net worth, as calculated from figures from a balance sheet, is based on historical costs or book values, whereas individual net worth takes into account the current market value of their assets and their current debt costs.