Net worth is the total valuation of an individual or an organisation where your financial condition is determined. Total number of assets and it’s value minus the liabilities you owe gives the networth. It helps determine anyone financial health and stability.
Keypoints in this blog
- Take away from the blog
- Understanding the concept
- Types of networth
- Example of it
1. Take away from the blog
It is a quantitative evaluation which can be applied to individuals, companies, sectors or countries also.
In many businesses, networth is also known as book value or shareholders equity.
2. Understanding the concept
Networth is financial value which comes after subtracting all liabilities from the asset. Asset is anything you own that has monetary value and liabilities are those whose value depriciate with time or charging any amount such as loan, mortgages etc.
Positive and increasing networth indicates good financial health. Best way to improve networth is either reduce the liabilties or increase the income, buying less things which means nothing or depreciate can increase your networth.
3. Types of net worth
In business terms, networth is also known as book value or shareholders equity. Balance sheet is also known as networth statement.
Lenders analyse companies networth in most cases to determine whether assets are higher then liabilities or not. This makes the creditor more aware and confident about company’s condition to repay it’s loan.
A consistent profitable company will register a positive networth as long as they are not distributing everything in form of dividends.
Net worth in personal finance
Individual networth is the amount whcih is left after subtracting liabilities from asset. Absolutely same as what we read above in case of business.
If somebody don’t know what are liabilities, it is mortgage, student loan, car loan or any type of loan, credit card etc.
Investors with a networth of 1 million excluding their residence with or without spouse are accredit investors in eyes of Securities and Exchange Commissions ( SEC ).
Consider a couple having the following asset.
- Residence worth of 2,00,000 Rs
- Investment portfolio having a market value of 3,00,000 Rs
- Auto mobiles and other assets worth 10,00,000 Rs.
Liabilities may be you have :
- A morgage balance of 1,00,000 Rs
- House loan of 20,000rs per month.
So in this case networth becomes : 13,80,000 Rs.
If you credit card bills and loans are higher then what you earn and posses as an asset then your networth is negative.
Hope you got to learn the best from Networth, it’s example and definition. Stay tuned for more upcoming valuable blogs.