How to determine your net worth?

How to determine your Net Worth?

We often hear the net worth statements like:
– Mark Zukerberg’s net earning is $11,950 crores
– Elon Musk’s net earning is $15,600 crores
– Twitter company’s net earning is $4.4 billion
– Mukesh Ambani’s net earning is $8,520 crores, and so on

But what is the meaning of this Net Worth?

Meaning of Net Worth

Net worth, in layman’s language means the sum of all the assets owned by an individual or a company, minus any debts or liabilities. This net earning help in measuring wealth and works as a financial indicator for all the persons.

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net worth

How to calculate net earning of an individual?

Calculating net worth of an individual requires to gather all the information of the current assets as well as liabilities. The step wise details for calculating net earning are as follows:

Calculation of Assets

Step 1: List your largest assets
In order to start calculating the net worth, an individual must start with the calculation of his largest assets. These largest assets could be value of home, real estate properties, vehicles like cars and bikes. In the case of business owner, the assets would also include the value of business. These assets can also include intangible assets like patents, trademarks, goodwill among other assets.

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Step 2: Gather latest statements for your liquid assets
The second step involved in calculating net earning of an individual is to gather the latest statements for the liquid assets. Some of the examples of liquid assets are savings accounts, cash, fixed deposits, certificates of deposits, etc.

Step 3: List down the value of personal items
After gathering and calculating the value of largest assets and liquid assets, the individual must now list down the value of personal items like jewellery, precious metals, stones, and many more.

Step 4: Add all the assets
The final step in calculating the value of assets is to add the value of largest assets, liquid assets and personal items. On adding, the individual’s net value of assets will be ascertained.

Calculation of liabilities

Step 1: List your outstanding liabilities
The individual in order to calculate his liability must start with the listing of all of his outstanding liabilities such as mortgages, income tax payable, GST payable and other related liabilities.

Step 2: Reconcile your personal liabilities
The next step in calculating liabilities is to reconcile the personal liabilities. Personal liabilities examples are EMI loans, credit card payments, student loan, etc.

Step 3: Add the above liabilities
The last step in calculation of liabilities is to add the outstanding liabilities and personal liabilities.

Net Worth Calculation = Total Assets – Total Liabilities

Illustration

Current Assets

Amount

Current Liabilities

Amount

Car

5,00,000

Credit out standing

30,000

Furniture

40,000

Personal loan standing

70,000

Jewellery

60,000

Education Loan

3,00,000

Total Assets

6,00,000

Total Liabilities

5,00,000

Net worth Value

= Total Assets – Total Liabilities

= Rs. (6,00,000 – 5,00,000)

= Rs. 1,00,000

Net Income for company

The formula for calculating net worth for company is calculated in the same way as the net worth of an individual is calculated i.e., by subtracting net liabilities from net assets.

Net worth of company = Total Assets – Total liabilities

The net worth of a company is also known as ‘Book Value’ or ‘Shareholders Equity’ of the firm.

Illustration

Particulars

2020 (in INR)

2021 (in INR)

Assets

Current Assets

3,00,000

4,00,000

Investments

45,00,000

41,00,000

Plant & Machinery

13,00,000

16,00,000

Intangible Assets

15,000

10,000

Total Assets (A)

61,15,000

61,10,000

Liabilities

Current Liabilities

200,000

2,70,000

Long term Liabilities

1,15,000

1,40,000

Total Liabilities (B)

3,15,000

4,10,000

2019 (in INR)

2020 (in INR)

Total Assets (A)

61,15,000

61,10,000

Total Liabilities (B)

3,15,000

4,10,000

Net Worth (A – B)

58,00,000

57,00,000

Conclusion

Net earning works like a financial indicator. If a person or company owns assets that are greater than liabilities, it is said to show a positive net earning. If the liabilities are greater than assets, it implies a negative net worth. A positive net worth is associated with good financial health, whereas negative net earning can be perceived as a negative signal and shows the inability to settle liabilities.

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