Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. It is a quantitative concept that measures the value of an entity and can apply to individuals, corporations, sectors, and even countries. Net worth is a good indicator of an individuals or a companys financial health. In business, net worth is also known as book value or shareholders equity.
To calculate net worth, one needs to take inventory of what they own, as well as their outstanding debt. Assets that contribute to net worth include homes, vehicles, various types of bank accounts, money market accounts, and stocks and bonds. Liabilities are financial obligations such as loans, mortgage, accounts payable (AP) that deplete resources. The formula for calculating net worth is: ASSETS minus LIABILITIES equals NET WORTH.
Net worth is used in the financial world to qualify certain individuals for particular investment strategies or financial products such as hedge funds, structured products, or other complex or alternative investments. It has also become a fixation of popular culture, with lists ranking the people with the highest net worth as well as the net worth of various celebrities.
