Net Worth

Net worth is a quantitative concept that measures the value of an entity and can be applicable to individuals, corporations, sectors and even countries. Simply stated, net worth is the difference between assets and liabilities. Positive net worth means that assets exceed liabilities while negative net worth describes the opposite scenario.

Net worth (assets minus liabilities) gauges financial health. An asset is anything that is owned and has monetary value while liabilities are obligations that deplete resources. Assets can be liquid when they are, or can be easily turned into, cash (like a checking account). They are non-liquid when it could take time to turn into cash (like a home). Liabilities are obligations that have to paid off (like a car loan).

Net worth provides a snapshot of an entity's current financial position. Positive and increasing net worth indicates good financial health, while a decrease would be cause for concern as it might be indicative of a decrease in assets relative to liabilities.

The best way to improve one's net worth, whether it be an individual or corporation, is to either reduce liabilities while assets either stay constant or rise, or increase assets while liabilities either stay constant or fall.