Net worth denotes the total value of assets belonging to a person or a firm. The timing of the Net-worth calculation varies from person to person and occasion to occasion. For example, some people calculate their net worth annually or quarterly, while others calculate their net worth after a sale or purchase involving transactions of large amounts.

Net Worth

Publication Date :

02 May, 2025

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Table of Contents

Net Worth Meaning

Net worth refers to the total value of assets owned by a firm or an individual minus their total liabilities. Net worth is an important indicator of a person's or a firm's financial health. Moreover, calculating net worth involves taking into account both positive and negative figures depending on the values of assets and liabilities.

Net-worth acts as a measurement of an individual or company's financial well-being. By tracking net worth over time, one can check whether progress has been made toward improving one's financial standing. Furthermore, once net worth is calculated, a suitable financial plan can be formed to increase it consistently.

Key Takeaways

Net worth is defined as the total wealth or value of assets of an individual or firm. It enables one to measure an individual's or firm's overall financial health and actual wealth.
Knowing one's net worth can lead to understanding the exact financial situation and the reasons for being there and help one decide more holistically to build good wealth in the future.
The Net-worth formula can be represented as Net-worth = total assets – total liabilities.
Net-worth, liquid Net-worth & income tends to be different because Net-worth represents the total savings, liquid Net-worth shows only liquid savings, and income helps generate the two.

Net Worth Explained

Net worth is defined as the total value of an individual or firm in terms of their savings or holdings, either in cash or in kind. Book value or Net-worth for businesses gets calculated as the difference between a company's assets and liabilities. A high net worth individual (HNWI) has a lot of money saved. One can apply net worth to either industry, business, or an individual. Many professionals use it as a tool to conduct special as-is analyses. At the same time, others use it to know about anyone holding any equity and, if yes, what may be worth.

Many financial specialists use it for tracking the financial progress of affirming by comparing their annual financial reports over some years. If the comparison indicates that Net-worth has increased over the years, the firm's business has grown. But, it is because only asset and liability alone cannot measure a firm's health.

For a firm, all its assets and liabilities get deduced from its balance sheet. Hence, a firm's assets and liabilities include the following:

Assets: Cash
Assets: Accounts receivable
Assets: Prepaid expenses
Liabilities: Accounts payable
Liabilities: Debt
Assets: Marketable securities
Assets: Inventory
Assets: Fixed assets
Liabilities: Accrued liabilities

The above details help one assess a firm's net worth, which further derives its value. Now, if one wants to find the Worth of an individual, then the following details are required:

Liabilities: Mortgage debt
Liabilities: Credit card debt
Assets: The resale value of furnishings and jewelry
Assets: The resale value of automobiles
Assets: Personal investments
Assets: Cash in the bank
Assets: The resale value of a house

Negative And High Net Worth

One must note that net worth can be either positive or negative. Negative net worth means that one has to reduce their debt burden. Therefore, negative Net-worth finds importance in filing for protection from bankruptcy to stop creditors from forceful repayment of loans. Still, it is ineffective in alimony, taxes, student loans, and child support.

High-net-worth individuals drive the investment banking sector as they have enough money to invest. If any HNWI has more than one million, then the Securities and Exchange Commission (SEC) term them as accredited investors who can invest in any securities not registered with the SEC. Some examples of HNWI and their Net-worth have been given below:

Elon Musk net worth - 171 billion USD
Amber heard net worth - $6 million
Johnny Depp net worth - $150 million
Kanye West net worth - $1.3 billion

Formula

The formula for Net-worth is derived from the following steps:

First, the total asset of an individual or a firm has to be determined, which covers their cash flow, fixed assets, etc.
Secondly, one has to determine their total liability.
Then, finally, one has to subtract the net liability from the net asset to get the formula of Net-worth as shown below:

Net worth = total assets – total liabilities

Examples

Let us use some calculations as examples to understand the concept better.

Example #1

Let's consider Noah's asset & liability records for our first example, as shown in the table below:

Assets		Liabilities
Immovable Properties	$40,00,000	Mortgage Loans	$22,00,000
Securities	$25,00,000	Vehicle Loans	$4,00,000
Savings Account	$7,50,000	Education Loan	$7,50,000
Insurance policy	$11,50,000
Jewelry	$1,50,000
Vehicles	$4,50,000
Total Assets	$90,00,000	Total liabilities	$33,50,000

Therefore, Net-worth = total asset – total liability

= $9000000-$3350000

= $5650000

Example #2

Let's consider XYZ corporation's balance sheet data for our second example, as shown in the table below:

Assets		Liabilities
Cash and cash equivalents	$ 5,500,000	Accounts payable	$ 3,800,000
Short-term marketable securities	$ 3,000,000	Accrued Expenses	$ 2,500,000
Accounts Receivable	$ 1800,000	Deferred Revenue	$ 900,000
Inventories	$ 1,500,000	Commercial Paper	$ 2,400,000
Vendor non-trade receivables	$ 400,000	Long-term debt	$ 9,000,000
Other current assets	$ 6,500,000	Other non-current liabilities	$ 4,500,000
Long-term marketable securities	$ 1,800,000
Property, plant, and equipment	$ 11,000,000
Other non-current assets	$ 2,500,000
Total Assets	3,40,00,000	Total Liabilities	2,31,00,000

Hence as per the formula:

The Net-worth of XYZ = total assets – total liabilities

= 34000000 – 23100000

= 10900000 dollars

Net Worth vs Liquid Net Worth vs Income

Here is a comparison between the three:

Net worth	liquid Net-worth	Income
It is quite different from income.	It comes within the Net-worth.	A high-income doe does not mean high net-worth
Net-worth does not mean income.	It uses only liquid cash plus holdings as assets.	A low income does not mean low-net worth.
One gets to know the status only after a certain duration has passed.	After subtracting the liability from the remaining liquid asset, one learns the liquid Net-worth.	It can increase or decrease every month.
It comprises the assets and liabilities created by the income.	Only the liquid part of the asset gets for calculation.	It comprises only the money that one earns.