Personal Finance

How to Calculate the Net Worth on Financial Statements

The net worth of a business is also known as its book value, or as its owners' (stockholders') equity. This figure can be computed relatively easily using information found on a company's balance sheet. However, even if the balance sheet isn't available, you can still calculate a business' net worth if you have some basic financial information.

Starting with the basic accounting equation that describes the relationship between assets, liabilities, and owners' equity:

By determining a business' assets and liabilities, we can calculate its owners' equity, or net worth.

Assets

Everything a business owns is considered to be an asset. There are two main categories of assets to be aware of. Tangible assets include anything you can see, such as cash or real estate. Intangible assets include things that have value but aren't physical items and can be tougher to value. For example, if a business has a strong brand name, it can result in the ability to charge more for than competitors for similar goods or services and therefore has some monetary value. Other types of intangible assets can include trademarks, patents, and industry knowledge, just to name a few.

There are many types of assets, which can include, but are not limited to:

  • Cash and short-term investments.
  • Receivables.
  • Inventory.
  • Buildings and land.
  • Equipment.
  • Intangible assets -- such as a business' brand name, patents, or goodwill.
  • Long-term investments.

Liabilities

The opposite of assets, liabilities represent the obligations of a business. Common forms of liabilities include:

  • Accounts payable -- goods or services purchased on credit from a supplier.
  • Wages payable.
  • Accrued expenses.
  • Debt (short- and long-term).
  • Interest payable.
  • Deferred income taxes.

An example

Let's say that you own a business, and that the assets listed on your balance sheet are as follows:

Type of Asset Value
Cash and short-term investments $120,000
Receivables $25,000
Inventory $50,000
Buildings/land value $350,000
Equipment $50,000
Intangibles $40,000
Long-term investments $150,000
Total assets $785,000

And, you currently have the following liabilities:

Type of Liability Amount
Accounts payable $20,000
Accrued expenses $35,000
Long-term debt $250,000
Deferred income taxes $15,000
Total liabilities $320,000

So, in this example, to to determine the net worth of your business, you can simply subtract your business' liabilities from its assets.

Now, it isn't uncommon for businesses to have a low or even negative net worth, especially if the business is relatively young. In many cases, a negative net worth can be a sign of trouble, but this isn't necessarily the case.

The $15,978 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors based in theFoolsaurus. Pop on over there to learn more about our Wiki andhow you can be involvedin helping the world invest, better! If you see any issues with this page, please email us atknowledgecenter@fool.com. Thanks -- and Fool on!

The article How to Calculate the Net Worth on Financial Statements originally appeared on Fool.com.

Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More