Reviewed by Aug 26, 2020| Updated on
Net worth is nothing but the difference between assets and liabilities of a business. Positive net worth means that assets are more than the liabilities, while negative net worth describes the opposite.
Understanding Net Worth
Net worth describes the financial health of an organisation. An asset is owned by the business and has a monetary value while liabilities are obligations that have to be paid.
So, if a business has liabilities in excess to what is owned, then the business's health is bad.
- The best way to improve the net worth is to either decrease liabilities while assets either stay constant or increase.
- Net worth can be calculated for individuals, businesses, companies, sectors, and even countries.
- In the context of business, net worth is also known as book value or shareholders' equity.
- Individuals with a substantial net worth are known as high net worth individuals (HNWI).