Updated on March 17, 2023
The term net worth refers to the net value or the net assets of a person or a company. It is one of the many indicators of the financial health of the person or the organisation. Checking the net worth of a company is one of the first steps taken by potential investors while investing in it.
What is the formula for calculating net worth?
The formula for calculating net worth is,
Net worth = Total Assets – Total Liabilities.
If the total assets of a person or entity are higher, they are said to have a positive net worth, on the other hand, if the liabilities are on the higher side, it results in a negative net worth. The easiest way to increase net worth are by increasing the assets or by decreasing the existing liabilities.
The net worth of a company refers to its equity. When a business has a positive net worth it shows that the business assets are sufficient to cover all the outstanding liabilities, thereby indicating sound financial health for the organisation. An increasing net worth year on year is another indication of a healthy and growing business which can translate into higher share prices.