Net worth

Definition

Net worth is the difference between an individual's or entity's assets and liabilities. It represents the value of everything owned minus the debts owed.

5 Must Know Facts For Your Next Test

1. Net worth can be positive or negative, depending on whether assets exceed liabilities or vice versa.
2. It is a snapshot of financial health at a specific point in time.
3. Calculating net worth involves simple arithmetic using integers, especially when dealing with debts and asset values.
4. Assets can include cash, investments, property, and other valuables while liabilities include loans, mortgages, and other debts.
5. Net worth is a key concept in personal finance management as it helps to evaluate financial progress over time.

Review Questions

• How do you calculate net worth using integers?
• What might cause someone's net worth to be negative?
• Why is understanding net worth important for evaluating financial health?

Related terms

Asset: An item of value owned by an individual or entity.

Liability: A financial obligation or debt owed by an individual or entity.

Balance Sheet: A financial statement that summarizes an entity's assets, liabilities, and net worth at a specific point in time.