Net worth
Encyclopedia
In business, net worth (sometimes called net assets) is the total assets minus total outside liabilities
of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value
. Net worth is stated as at a particular year in time. In the case of an individual, the term estate
is used in relation to deceased individuals in probate
. For businesses, the term is used in the context of fraudulent law and on the dissolution of the company.
In personal finance
, net worth (or wealth) refers to an individual's net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities.
Net worth in business is generally based on the value of all assets and liabilities at the carrying value
which is the value as expressed on the financial statements
. To the extent items on the balance sheet do not express their true (market) value, the net worth will also be inaccurate.
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 as a going concern
.
On reading the balance sheet, if the accumulated losses exceed the shareholder's equity, it is a negative value for net worth.
Liability (financial accounting)
In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.A liability is defined by the...
of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value
Book value
In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset. Traditionally, a company's book value...
. Net worth is stated as at a particular year in time. In the case of an individual, the term estate
Estate (law)
An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person...
is used in relation to deceased individuals in probate
Probate
Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person's property under the valid will. A probate court decides the validity of a testator's will...
. For businesses, the term is used in the context of fraudulent law and on the dissolution of the company.
In personal finance
Personal finance
Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future...
, net worth (or wealth) refers to an individual's net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities.
Net worth in business is generally based on the value of all assets and liabilities at the carrying value
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
which is the value as expressed on the financial statements
Financial statements
A financial statement is a formal record of the financial activities of a business, person, or other entity. In British English—including United Kingdom company law—a financial statement is often referred to as an account, although the term financial statement is also used, particularly by...
. To the extent items on the balance sheet do not express their true (market) value, the net worth will also be inaccurate.
Net worth in this formulation is not an expression of the market value
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
of the firm: the firm may be worth more (or less) if sold as a going concern
Going concern
A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.-Definition of the 'going concern' concept:...
.
On reading the balance sheet, if the accumulated losses exceed the shareholder's equity, it is a negative value for net worth.