What is Net Worth?
Net worth refers to the total value of an individual or company expressed as total assets less total liabilities.
How Does Net Worth Work?
The net worth of an individual is simply calculated as total assets (e.g. home equity and portfolio value) less total debt (e.g. mortgage, credit card debt, auto loans, and educational loans).
For example, an individual with total assets of $100,000 and $30,000 of total debt would have a net worth of $100,000 – 30,000 = $70,000.
A company's net worth is calculated in a similar manner, but is referred to as stockholder equity.
Why Does Net Worth Matter?
For a company, net worth is a necessary consideration for the purposes of valuation, particularly in the event of a acquisition or merger. For an individual, net worth is important for tax purposes, wealth management and estate planning.