Liquid assets are assets (things you own or are owed) that can be easily converted into cash.
The money in your checking account is a liquid asset – it can be accessed any time at the bank or by using an ATM. On the flip side, a house isn’t liquid at all. You may have sunk a million into purchasing it, but if someone asks you for that same million in cash tomorrow, you won’t be able to hand it over.
(image credit: B Rosen)
Numbers can tell you an awful lot, even if you don’t usually think of yourself as a number-cruncher.
Here’s one way: You’ve heard of net worth. You may even know yours. But have you ever watched your net worth fluctuate over time? It’s a really easy and interesting (really!) way to see how you’re growing (or regressing) as a Possessor of Wealth.
For example, a net worth number that consistently increases is a good sign that you’re doing something right. But even a dip can be instructive. Did the recession wipe out your investment holdings? Maybe it’s time to reconsider your strategy so it doesn’t happen again. (Hint: Try diversification next time.) Did your numbers go down because you spent a lot of money on tuition this year? Watch to see if your net worth increases as a result of your education investment.
We found a cool site called NetworthIQ that helps you track your net worth over time AND snoop on a bunch of other people tracking their net worth. You can compare your progress with others by age, location, education, and job category.
Not that your net worth necessarily reflects your worth as a whole person, but knowing has to be… worth something. Worth.
Net worth is a way of describing the overall monetary value of a person or a company. You can calculate your net worth by subtracting the money you owe from the money you have.
To put it in business terms, let’s talk about assets and liabilities. Liabilities are monetary obligations like debts, fees, or loans. Assets represent everything a company owns, including cash, investment, properties, and equipment. So if you run a cupcake cart that has $5,000 in assets (including cash, cupcake supplies, and the cart itself), but you have to pay your grandmother back the $1,000 she lent you to get started, your cupcake cart’s net worth would be $4,000.
Valuation, the process of determining how much a corporation is really worth, is always partly objective and partly subjective. There are several different methods commonly used, but there’s going to be some guesswork involved no matter what.
The most common way to value a company is according to its earnings, which are usually calculated according to earnings per share: you simply divide the company’s net profit by the number of shares it has. (You want the earnings per share value because that makes it is a standard measure to reflect each piece of ownership in the company). You can also value a corporation according to its assets – that is, if a company paid off all its debts and added up everything of value it had left, how much money would that amount to? Another technique involves measuring cash flow, or how much money passes through a company in various transactions over the course of a quarter or fiscal year (not counting predetermined expenses like taxes and interest).
Investors compare “like” companies, as defined by industry, growth rates, or geography, based on their Price to Earnings (PE), Price to Cash Flow, or Price to Growth (PEG) ratios. Price to Growth is used for companies like Facebook, that are yet to have earnings! Higher quality companies get higher ratios, or valuations, versus lower quality earnings. Historically, the average PE within the S&P 500 since 1936 is a PE of about 15.8x.
These are the most basic techniques, but there are many alternative techniques that are used or that some people claim are more effective. And ultimately, no matter which method you use, the “true value” of a company is only something that can ever be approximated; it’s more of an ideal than a calculable number.
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.
Shareholder’s equity is a company’s total assets minus its total liabilities. Essentially, it’s how much a company is worth.
An asset is any item of economic value owned by either an individual or a corporation. For example, an asset could be money in your wallet, a car, kitchen equipment in a restaurant, or a patent on a really cool new hover board.