About Net Worth Formula
A person's or organization's net worth is the sum of their assets minus their liabilities (debts). The net worth formula aids in the calculation of firm equity. It can be applied to individuals, groups, organisations, governments, or entire cities/countries. The difference between the value of all of an organization's assets and liabilities, which can be simply calculated using the net worth formula, describes the financial health of the organisation.
Although equity and net worth are frequently used interchangeably, they are sometimes employed in different circumstances. The difference between assets & liabilities is the net worth formula. The two most crucial parts of net worth to remember are:
- If net worth > 0, capable of paying off debts and growing financially
- If net worth < 0, unable to settle debts and experiencing poor financial development
Net Worth Formula
Subtracting the entire liabilities from the total assets of the relevant company yields the net worth formula. As a result, the formula is:
Total Assets – Total Liabilities= Net Worth
Derivation of Net Worth Formula
Following these simple procedures will give you the net worth formula:
- Step1: Calculate the company's total assets, which include cash inflow, fixed assets, and other assets.
- Step 2: Calculate the company's overall liabilities, which include debts, short-term borrowing, and so on.
- Step 3: Use the net worth formula to calculate the net worth after we've calculated the total asset and total obligation.
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