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Net Worth

hardik dave (student) (508 Points)

26 February 2011

whay is the exact meaning of net worth of company.

please reply soon.

thanks.

Hardik

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2 Replies

BALASUBRAMANYA B N (CCI STUDENT....) (44679 Points)
Replied 26 February 2011

For a company, total assets minus total liabilities. Net worth is an important determinant of the value of a company..

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Krish (CA Final ) (3331 Points)
Replied 27 February 2011

Net worth means total value of Company if we exclude outsider loans.

Lets take it in simple form.

Suppose, you have invested Rs. 3,00,000 on land and Rs. 2,00,000 on home and to purchase these things you have arranged money from your own funds, from family members and from outsiders i.e 4,00,000 from own funds and family members and 1,00,000 from outsiders. In this case one can say that your value is only 4,00,000 that you have arranged from your own sources, excluding loan of Rs. 1,00,000, because loan is your own responsibility to pay. That’s why when we calculate Net Worth of any company we include only Share capital and Part of shareholders i.e. Reserve and surplus and exclude all such things that we have taken from outsiders.

Practically,

For a company, this is known as shareholders' (or owners') equity and is determined by subtracting liabilities on the balance sheet from assets. For example, if a company has 45,00,000 worth of liabilities and 65,00,000 in assets, the company's net worth (shareholders' equity) is 20,00,000 (65,00,000 – 45,00,000). Alternatively, say an individual has three assets—100,000 of common stock, 30,000 worth of bonds, and title to a 190,000 house—and only one liability—150,000 in mortgage debt. This individual's net worth would be 170,000 ([100,000 + 30,000 + 190,000] - 150,000).

Let’s take it in another way.

A corporation's net worth is the retained earnings, or the amount left after dividends are paid, plus the money in its capital accounts, minus all its short- and long-term debt.

Net worth may also be called shareholder equity, and it's one of the factors you consider in evaluating a company in which you're considering an investment.

To figure your own net worth, you add the value of the assets you own, including but not limited to cash, securities, personal property, real estate, and retirement accounts, and subtract your liabilities, or what you owe in loans and other obligations.

If your assets are larger than your liabilities, you have a positive net worth. But if your liabilities are more than your assets, you have a negative net worth. When you apply for a loan, potential lenders are likely to ask for a statement of your net worth.