Net Worth

By Entrepreneur Staff

Net Worth Definition:

The amount of equity a company has, which is the difference between its total assets and total liabilities.

Your net worth is just as important as your income. Every now and then, you should sit down and tally up your personal assets and liabilities, just as you do with your business, to figure out where you stand. Enter actual or estimated market values on each line and total just as you would a balance sheet.

You can grow your net worth through some combination of decreasing liabilities and increasing assets. Why should you care if your net worth grows? One common reason is retirement planning. Simply put, the more assets you have, the more comfortable your retirement will be. You may also need a high personal net worth to buy a business, pursue some types of investments, purchase a second home, pay for a child's college education, or for other purposes.

More From Financial Management

Cash Float Accounts

A bank account specifically set up by a business owner to float money through from Business A to enhance the perceived value of Business B

Cost-Benefit Analysis

A process by which you weigh expected costs against expected benefits to determine the best (or most profitable) course of action

Assets

The value of any tangible property and property rights owned by a company less any reserves set aside for depreciation. Assets don't reflect any appreciation in value unless they're sold for the greater value.

Debt-to-Equity Ratio

A measure of the extent to which a firm's capital is provided by owners or lenders, calculated by dividing debt by equity. Also, a measure of a company's ability to repay its obligations. If ratios are increasing--more debt in relation to equity--the company is being financed by creditors rather than by internal positive cash flow which may be a dangerous trend.