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What is Net Worth

Posted by The New N Used link Team on Tuesday, July 30, 2013 Under: Business


As simple as "Net worth" may seem to explain, there are people who do not fully understand what it means and how its calculated. Some people believe that someones net worth is their physical cash and it can easily be disbursed but in actuality there is more to it. Look for example Mark Zuckerberg (Facebook Co Founder) who's net worth is estimated to be around 17billion only have 150 million in cash (mentioned from Bloomberg). Net worth (sometimes called net assets) is the total assets minus total outside liabilities of an individual or a company. Net worth is stated as at a particular year in time, in personal finance net worth (or wealth) refers to an individual's net economic position; similarly, it uses the value of all assets (long term assets) minus the value of all liabilities.

Investopedia explains 'Net Worth'

Consider a couple with the following assets - primary residence valued at $250,000, an investment portfolio with a market value of $100,000 and automobiles and other assets valued at $25,000. Liabilities are primarily an outstanding mortgage balance of $100,000 and a car loan of $10,000. The couple's net worth would be therefore be $265,000 ([$250,000 + $100,000 + $25,000] - [$100,000 + $10,000]). Assume that five years later, the couple's financial position is as follows - residence value $225,000, investment portfolio $120,000, savings $20,000, automobile and other assets $15,000; mortgage loan balance $80,000, car loan $0 (paid off). The net worth would now be $300,000. In other words, the couple's net worth has gone up by $35,000 despite the decrease in the value of their residence and car, because this decline is more than offset by increases in other assets (such as the investment portfolio and savings) as well as the decrease in their liabilities.

People with a substantial net worth are known as high net worth individuals, and form the prime market for wealth managers and investment counselors. Investors with a net worth (excluding their primary residence) of at least $1 million - either alone or together with their spouse - are considered as "accredited investors" by the Securities and Exchange Commission, for the purpose of investing in unregistered securities offerings. A company that is consistently profitable will have a rising net worth or book value, as long as these earnings are not fully distributed to shareholders but are retained in the business. For public companies, rising book values over time may be rewarded by an increase in stock market value.

In : Business 

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