What Does Net Worth mean?

By Pradeep Yuvaraj | March 15, 2011

The amount by which assets exceed liabilities is called the net worth. This term is applicable to both companies and individuals.  In case of an individual, it is the difference between the assets and liabilities of the individual.

In business, net worth (sometimes called net assets) is the total assets minus total outside liabilities of an individual or a company. For example a company, this is known as shareholders’ (or owners’) equity and is determined by subtracting liabilities on the balance sheet from assets. For example, if a company has Rs. 45 million worth of liabilities and Rs.80 million as assets, then the company’s net worth (shareholders’ equity) is Rs.35 million (Rs.80 million – Rs.45 million).

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.

In case the balance sheet, if the accumulated losses is more than the shareholder’s equity (or the income/assets), it is a negative value for net worth. Similarly an individual with more liabilities than the assets is said to have a negative net worth. The loans, say it be home loan or a car loan add on to the liabilities of an individual.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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