How To Calculate Net Worth
What is considered a liability to a person's net worth?
Hi, my name is Grant Hobson. I work as a finance analyst. Today, I'm going to talk you through some business math calculations and ratios. How to calculate net worth, we can look at this from both a business and a personal prospective, so net worth in terms of a business is also referred to as net liabilities. You're just taking through equation your net assets, deduct your net liabilities, and that gives you your financial position. From a personal prospective, you might want to understand what you're worth, so how much money you've got to go and spend on. There are some additional items. You take into account all of the assets that you've got, so your house and any cars and things like that, plus and any liabilities that you've got, so any loans that you owe like your credit card. That just gives you an indication of what your economic position is really. So we'll demonstrate this again with some examples. Just so you get a feel for how it works. So in terms of establishing net worth from a business prospective, we just take the formula assets minus your liabilities. So you get these from your balance sheet. Total assets for example of a company would be 1.2 million. We know that the liabilities are 850,000 pounds. You say your net worth is 350,000 pounds. It's probably more useful from a personal prospective to understand your own financial position, because a lot of people lose track of it and don't really know what they owe and what they have coming in and what their assets are. So in terms of getting your total assets, you want to look at terms of what you've got for your cash, your investments, your physical assets, and what you owe is obviously all of your outstanding debts. So for example, you say in this case, we have 5,000 pounds in our bank account. We have 2,500 pounds of investments. We've got a house that's worth 120,000 pounds and then we've got a car that's worth say 13,000 pounds. We say that our assets are worth about 140,000 pounds but then we obviously have to take into consideration all of our liabilities. So, on the loans that we owe, 1,600 pounds, we have outstanding mortgage payments to make, so that could be 75,000 pounds and then any debt you've got on credit cards. So that would be 1,200 pounds. So the liabilities would be just short of 78,000 pounds. We say we have a net worth of 62,700 pounds. So this is just a few items that we might have in terms of assets and liabilities. So when reviewing your own, you obviously know what all of the things you've got to include into that calculation. .