Net WorthFinancial Dictionary -> Investing -> Net Worth
The net worth figure can be an important factor in the valuing of a company, because it is based on the total amount of the funds invested since the business' beginning, on top of all of the retained profit made for the duration of its business lifetime.
Net worth is used by stakeholders in many ways, including a determining factor in creditworthiness, because it offers a view of a company's financial and investment history.
A simple example of net worth in action can be:
If a company has $100,000 in investments and assets, and $30,000 in debt, then the net worth of the company is $70,000. This basically shows how much money is in the business, and therefore how successful it is.
In individual finance, the total monetary value of somebody's available cash and personal assets, minus all of their liabilities is the calculation used in net worth. Any excess of someone's assets over their liabilities is considered their net worth and is the method that the richest people in the world are ranked against. Assets may be your car, your home and your savings and your liabilities could be your credit card debt, loans and your mortgage.
Net worth is often considered the most important measure of financial health, and obviously the higher you or your business's net worth is, then the more financially stable you are. This works from an investor's point of view in determining the stability of a company they may wish to invest in. If the company had a low net worth it may be a sign that business isn't flourishing.