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Net Worth: Definition and Meaning
Definition
Net worth is the difference between total assets and total liabilities. For a business, it is generally another way of describing equity.
Why It Matters
Net worth offers one view of financial strength, but it should be considered with liquidity, debt terms, cash flow, asset quality, profitability, and contingent obligations. A company can have positive net worth but still face short-term cash-flow challenges.
Lenders, sureties, owners, and advisors may review net worth as part of a broader assessment of financial position.
Example
A company has total assets of $900,000 and total liabilities of $500,000. Its net worth is $400,000.
Related Terms
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