Very Often we hear about the Net Worth of Billionaires, Millionaires and Celebrities, and are amazed by their values. But it is important to know what exactly does Net Worth actually means ?
Net Worth is not the salary earned by the person per annum neither it is his total cumulative salary for the years, neither it is earnings or investments, nor loans or liabilities, it is actually a mixture of all the above stated things.
It is important to understand how do we calculate Net Worth. In this article guide, you will know what actually Net Worth is and how can we calculate it. What are the things to keep in our mind?
Net Worth Definition
Net worth is simply the difference between the asset and the liability. Net worth is a measure of entity’s worth and hence is also known has owner’s worth or shareholder equity. Net worth can be calculated for an individual, firms or companies, or even countries.
What makes net worth
As per the definition, net worth consists of assets and liabilities. To understand net worth, one needs to first understand assets and liabilities.
Assets are the items which are owned by a person or company. Assets consist of cash and cash equivalents, inventory, plant and machinery, building etc. For calculating net worth, one must first identify the current market value of assets.
Liability is an item which is payable by a person or company. Liabilities are the outstanding debts and consist of bank debts, bonds, vendor payments etc.
How to calculate net worth
The simple formula to calculate net worth is:
Net Worth = Assets minus Liabilities.
Net Worth of a Company
Investors consider a lot many things while considering investment in a company because investors want to understand at what level the company is operating at present, what are the potential opportunities for the company, how the company is valued etc. So it becomes necessary to know what the net worth of the company is.
The net worth of a company can be calculated as per the above formula.
Net worth will be equivalent to the amount left to be distributable among all the shareholders after all the liabilities are paid off from the sale of all assets valued at current market price.
Net Worth of an Individual
In case of an individual, net worth is the assets such as personal properties that consist of house, cars, jewellery, cash etc. less liabilities such as secured and unsecured loans.
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Positive and Negative Net Worth
If an individual or a company has more assets as compared to liability, there will be positive net worth. If a company has huge profits which it thinks to retain, it will lead to an increase in net worth.
If an individual or a company has more liabilities as compared to assets, there will be negative net worth. If a company has negative earnings or fewer earnings which it thinks to distribute among shareholders, it will lead to decrease in net worth.
Net worth Calculator tells you what is net worth, how to calculate Net worth, formula for net worth and exact net worth calculation,
|Shares & Equity Mutual Funds (Rs.)||*|
|Fixed Income Assets (Rs.)(Fixed deposits, Bonds, debt funds, PPF etc.)||*|
|Cash and Bank Accounts (Rs.)(Savings accounts, Cash in hand, liquid funds, etc.)||*|
|Gold and Jewelleries (Rs.)||*|
|Others (if any) (Rs.)||*|
|Sum Total of Assets||A|
|Home Loan (Rs.)||*|
|Personal & other Loans (Rs.)||*|
|Income Tax owed (Rs.)||*|
|Outstanding bills / payments (Rs.)||*|
|Credit Card dues (Rs.)||*|
|Other liabilities (if any) (Rs.)||*|
|Sum Total of Liabilities||L|
So, we hope you have understood what Net Worth is. One should always ensure that your Net Worth never goes negative!