What is a Net Worth?<\/strong><\/h3>\nIt is a quantitative concept which measures the value of an entity. It is applicable ranging from an individual to companies, organizations, sectors and a country as a whole. To put it simply, it is the difference between assets and liabilities. A positive net worth means assets are greater than liabilities, whereas negative net worth mean liabilities are greater than assets.<\/p>\n
Formula:<\/strong><\/p>\nNet Worth = Assets \u2013 Liabilities<\/p>\n
A little more into Net Worth Concept:<\/strong><\/p>\nNet worth conveys the financial health of any entity. Asset is anything that is owned and has a monetary value to it while liabilities is a commitment that deplete resources. Assets can be liquid or which can turn into liquid ( example: bank check ). They are non-liquid when they take time to turn into cash (like for example Home). Whereas liability is an obligation that has to be repaid ( example: home loan, car loan etc.,)<\/p>\n
Any financial institution or 3rd party look at your assets and liabilities to understand the financial position. Positive net worth or increasing asset base indicates good financial health while negative net worth or increasing liabilities means a bad financial health condition.<\/p>\n
It is always a good habit for any entity to maintain a reduce liabilities and increase or maintain a balanced asset base.<\/p>\n