Net worth is the value of the assets that a person/organization owns minus the liabilities they owe (debts). The net worth formula helps in calculating equity in terms of business. It can be used at various levels such as personal, group, organization, government, or to entire cities/countries. Net worth in the business of an organization describes the financial health of the organization, it is equal to the difference between the value of all its assets and all its liabilities which can easily be found out using the formula for net worth. The net worth formula is explained below along with solved examples.
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Equity generally is used synonymously to net worth, but they sometimes are used in different contexts. An individual's net worth is equal to the difference between the assets and liabilities. The formula for net worth is:
Net Worth = Assets – Liabilities
If net worth > 0, able to settle liabilities and has good financial growth
If net worth < 0, unable to settle liabilities, and has negative financial growth
Solved Example using the Net Worth formula
Example 1: By using net worth formula, find Sam's net worth from the following balance sheet data:
Total assets value = 45,00,000 + 20,00,000 + 7,00,000 + 12,00,000 + 50,000 + 5,00,000 = $ 89,50,000