Net worth

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    Net worthWhat is net worth, and how is it calculated?

    Net worth is the sum of total assets minus total liabilities and is thus a key indicator of the value or worth of an entity. It applies to both companies and individuals.

    Example: You own a house worth $100,000 and a car worth $15,000. Your total assets will be worth $115,000. If you have a mortgage of $75,000 and outstanding car loan of $10,000, then your liabilities are $85,000. Your net worth is then $115,000 minus $85,000, giving you a total net worth valuation of $30,000.

    Net worth in trading

    A company that is experiencing a consistent increase in its net worth can be viewed as being in robust financial health, as long as a portion of any such earnings is retained in the business alongside dividends paid out to shareholders.

    Net worth can fall, however, if the company experiences yearly operating losses or the value of its assets decreases relative to its liabilities.

    Over time, increasing net worth is likely to lead to a rise in the share price of a publicly listed company.

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