The obvious answer seems to be that a person or company is worth however much money they have, but that number isn’t always easy to figure out. It can be hard just to figure out how much money you have in the bank at any given time: you can print out an account statement, of course, but what about all the checks you’ve written and purchases you’ve charged to credit cards that have to be deducted from that number? How do you come up with a number that reflects what you’re really worth?

This number is called net worth. For both people and corporations, net worth is represented as total assets minus total liabilities. But even though the equation is simple, the calculations can be complicated. Anything of monetary value is considered an asset; any debts or payments you’re obligated to make constitute liabilities. So your house is an asset, but your mortgage is a liability. Your car is an asset, but your lease payments are a liability. Your salary is an asset, but your bills are all liabilities. You have to take all these little additions and subtractions into account in order to figure out your net worth.

Tags: assets, liabilities, net worth