What is the formula for calculating net worth?

What is the formula for calculating net worth?

• A. Assets plus liabilities
• B. Assets divided by liabilities
• C. Assets minus liabilities
• D. Assets times liabilities

Answer: (C)

The formula for calculating net worth is assets minus liabilities. This financial metric helps individuals or businesses understand their financial position by determining what is owned versus what is owed. When you subtract your total liabilities (debts and obligations) from your total assets (everything of value that you own), the resulting figure represents your net worth. A positive net worth indicates that your assets exceed your liabilities, while a negative net worth indicates the opposite. In understanding net worth, it's essential to differentiate between the given options. Adding liabilities to assets would yield a total that doesn't reflect actual wealth or financial health, as it incorrectly combines ownership with obligations. Dividing assets by liabilities would not provide a meaningful financial figure relevant to net worth. Multiplying assets by liabilities similarly detracts from the clear understanding of financial standing. Therefore, the correct approach is to focus solely on subtracting liabilities from assets.

The formula for calculating net worth is assets minus liabilities. This financial metric helps individuals or businesses understand their financial position by determining what is owned versus what is owed.

When you subtract your total liabilities (debts and obligations) from your total assets (everything of value that you own), the resulting figure represents your net worth. A positive net worth indicates that your assets exceed your liabilities, while a negative net worth indicates the opposite.

In understanding net worth, it's essential to differentiate between the given options. Adding liabilities to assets would yield a total that doesn't reflect actual wealth or financial health, as it incorrectly combines ownership with obligations. Dividing assets by liabilities would not provide a meaningful financial figure relevant to net worth. Multiplying assets by liabilities similarly detracts from the clear understanding of financial standing. Therefore, the correct approach is to focus solely on subtracting liabilities from assets.