Determining net worth using a balance sheet involves calculating the difference between a company’s total assets and its total liabilities, providing a snapshot of its financial health at a specific point in time. For instance, if a business has $1 million in assets and $500,000 in liabilities, its net worth is $500,000.
Calculating net worth from a balance sheet is essential for investors, creditors, and business owners alike. It serves as a benchmark for financial stability, creditworthiness, and investment potential. Historically, the concept of net worth has evolved alongside accounting practices, with the modern balance sheet format emerging in the late 19th century.