NET WORTH

Description: A company's net worth is the amount of money that is left over after all of its liabilities have been deducted from its assets. This is theoretically the amount of funds that would be left over for distribution to investors if a company were to be liquidated. A negative net worth is a reasonable indicator of serious fiscal problems. This measure is sometimes used by lenders, who may require that a minimum net worth be maintained for a loan to be left outstanding.

Formula: In its simplest form, the net worth calculation is found by subtracting total liabilities from total assets. The formula is:

A more detailed version of the measurement is found by subtracting any preferred stock dividends from total assets; dividends may be listed only alongside the balance sheet as a footnote and so would not otherwise be included in the calculation. In essence, every obligation of the company to make a payment, whether it be included on the balance sheet as a liability or not, should be subtracted from total assets to help arrive at a company's net worth. The revised calculation is: