How to Calculate the Net Worth on Financial Statements

by Christopher Carter

The net worth of a business may be referred to as the book value or owners’ equity of the company. The net worth of a company indicates the amount of equity owners have in a business. A company’s balance sheet provides all the necessary financial information to calculate a company’s net worth. Knowledge of the accounting equation, which states that assets equal liabilities plus owners’ equity, makes it relatively easy to calculate the net worth of a company.

Step 1

Identify all assets that the company will convert to cash within a one-year period. Add current assets, like cash, and accounts receivable. The total indicates a company’s total current assets. For example, a company with $17,000 cash, $24,000 accounts receivable, $4,500 prepaid rent and $30,000 in inventory has total current assets of $75,500.

Step 2

Calculate all assets that the company will convert to cash in over one year. A company may hold long-term assets, like real estate, equipment, computers and land. Other long-term assets may include patents, vehicles, furniture and copyrights. A business with $150,000 land, $13,500 computers, $25,000 equipment and $320,000 real estate holdings has $508,500 total long-term assets.

Step 3

Add current assets and long-term assets. The result will yield a company’s total assets, which are the company’s resources of future economic value. Assuming that current assets equal $75,500 and long-term assets equal $508,500 the business will have $584,000 total assets.

Step 4

Verify the company’s liabilities that will become due within one year. Examples of current liabilities include accounts payable, wages payable, interest payable and notes payable within one year. A company with $28,000 wages payable, $12,000 interest payable and $96,000 accounts payable has current liabilities of $136,000.

Step 5

Confirm the liabilities that must be paid in over one year. Long-term liabilities include notes payable in over one year, mortgages payable, bonds payable and leases. A company with $89,000 mortgages payable, $60,000 lease payable on equipment, $107,000 notes payable and $40,000 bonds payable has total long-term liabilities of $296,000.

Step 6

Compute total liabilities by adding current liabilities with long-term liabilities. Assuming a company has current liabilities of $136,000 and long-term liabilities of $296,000 the total liabilities equal $432,000. This number indicates the total obligations the company has due to creditors, lenders and suppliers.

Step 7

Subtract a company’s total liabilities from total assets to determine the net worth of the business. A company with total assets of $584,000 and liabilities totaling $432,000 has a net worth equal to $152,000.

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