What does net worth mean?

Net worth in finance refers to the value of an individual, company, or entity's financial assets minus their liabilities. Essentially, it is a measure of an entity's overall financial health and is calculated by subtracting total liabilities from total assets. For an individual, net worth includes all assets such as cash, investments, real estate, and personal belongings, minus all debts and liabilities such as mortgages, loans, and credit card balances. For a company, net worth includes all assets such as cash, accounts receivable, inventory, and property, minus all debts and obligations such as loans, bonds, and accounts payable. Net worth is an important measure as it provides an indication of an entity's financial stability and ability to meet its financial obligations. A positive net worth indicates that the entity has more assets than liabilities, while a negative net worth indicates that the entity has more liabilities than assets. It can also be used to assess an individual's or company's financial progress over time, as increases in net worth indicate financial growth, while decreases indicate financial decline. Additionally, net worth is often used by lenders and investors to evaluate creditworthiness and investment potential. A high net worth may enable individuals to secure favorable loan terms and interest rates, while companies with a strong net worth may attract more investors and access financing at lower costs. Overall, net worth is a key metric in financial management and planning.