Net worth is the value of all the non-financial and financial assets owned by an institutional unit or sector minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net worth can also be conveniently expressed as non-financial assets plus net financial assets. It can apply to companies, individuals, governments or economic sectors such as the sector of financial corporations or to entire countries.
By entity
Companies
Net worth in business is also referred to as equity. It is generally based on the value of all assets and liabilities at the carrying value which is the value as expressed on the financial statements. To the extent items on the balance sheet do not express their true value, the net worth will also be inaccurate. On reading the balance sheet, if the accumulated losses exceed the shareholder's equity, net worth becomes negative. Net worth in this formulation does not express the market value of a firm: a firm may be worth more if sold with a going concern. Net worth vs. debt is a significant aspect of business loans. Business owners are required to "trade on equity" in order to further increase their net worth. Capitalization of net worth can be achieved by investigating the equity of a loan debt scenario. Investigation of said scenario will increase the likelihood of a business growing their net worth exponentially.
Individuals
For individuals, net worth or wealth refers to an individual's net economic position, the value of the individual's assets minus liabilities. Examples of assets that an individual would factor into their net worth include retirement accounts, other investments, home, and vehicles. Liabilities include both secured debt and unsecured debt. Typically intangible assets such as educational degrees are not factored into net worth, even though such assets positively contribute to one's overall financial position. For a deceased individual, net worth can be used for the value of their estate when in probate. Individuals with considerable net worth are listed as High-net-worth individuals and Ultra high-net-worth individuals. Furthermore, a deeper understanding of an individual's net worth can achieve two primary functions: improve your current financial standing and give a reference point for measuring progress towards your goals. Individual net worth growth takes time and significant progress can only be made through consistent saving. It is advisable to calculate net worth once or twice a year.
Governments
Balance sheets that include all assets and liabilities can also be constructed for governments. Compared with government debt, a government's net worth is an alternative measure of the government's financial strength. Most governments utilize an accrual-based accounting system in order to provide a transparent picture of government operational costs. Other governments may utilize cash accounting in order to better foresee future fiscal events. The accrual-based system is more effective, however, when dealing with the overall transparency of a government's spending. Massive governmental organizations rely on consistent and effective accounting in order to identify total net worth.
Countries
A country's net worth is calculated as the sum of the net worth of all companies and individuals resident in this country, plus the government's net worth. As for the United States, this measure is referred to as the financial position. To further elaborate, the United States has roughly $269.6 trillion dollars in assets.
