What It Is:
Net worth refers to the total value of an individual or company expressed as total assets less total liabilities.
How It Works/Example:
For example, an individual with total assets of $100,000 and $30,000 of total debt would have a net worth of $100,000 – 30,000 = $70,000.
A company's net worth is calculated in a similar manner, but is referred to as stockholder equity.
Why It Matters:
For a company, net worth is a necessary consideration for the purposes of valuation, particularly in the event of a acquisition or merger. For an individual, net worth is important for tax purposes, wealth management and planning.