The net worth of a business is also known as its book value or its owners' (stockholders') equity. This figure can be computed relatively easily using information found on a company's balance sheet. However, even if the balance sheet isn't available, you can still calculate a business' net worth if you have some basic financial information.

A businessperson reviewing an income statement.
Image source: Getty Images.

Starting with the basic accounting equation that describes the relationship between assets, liabilities, and owners' equity:

Assets = Liabilities + Owners' Equity

By determining a business's assets and liabilities, we can calculate its owners' equity, or net worth.

Assets

Assets

Everything a business owns is considered to be an asset. There are two main categories of assets to be aware of. Tangible assets include anything you can see, such as cash or real estate. Intangible assets include things that have value but aren't physical items and can be tougher to value. For example, if a business has a strong brand name, it can result in the ability to charge more than competitors for similar goods or services and therefore has some monetary value. Other types of intangible assets can include trademarks, patents, and industry knowledge, just to name a few.

There are many types of assets, which can include, but are not limited to:

  • Cash and short-term investments.
  • Receivables.
  • Inventory.
  • Buildings and land.
  • Equipment.
  • Intangible assets -- such as a business's brand name, patents, or goodwill.
  • Long-term investments.

Liabilities

Liabilities

The opposite of assets, liabilities represent the obligations of a business. Common forms of liabilities include:

  • Accounts payable -- goods or services purchased on credit from a supplier.
  • Wages payable.
  • Accrued expenses.
  • Debt (short- and long-term).
  • Interest payable.
  • Deferred income taxes.

Example

An example

Let's say that you own a business and that the assets listed on your balance sheet are as follows:

TYPE OF ASSET VALUE
Cash and short-term investments $120,000
Receivables $25,000
Inventory $50,000
Buildings/land value $350,000
Equipment $50,000
Intangibles $40,000
Long-term investments $150,000
Total assets $785,000

And you currently have the following liabilities:

TYPE OF LIABILITY AMOUNT
Accounts payable $20,000
Accrued expenses $35,000
Long-term debt $250,000
Deferred income taxes $15,000
Total liabilities $320,000

So, in this example, to determine the net worth of your business, you can simply subtract your business' liabilities from its assets.

Net Worth = $785,000 - $320,000 = $465,000

Now, it isn't uncommon for businesses to have a low or even negative net worth, especially if the business is relatively young. In many cases, a negative net worth can be a sign of trouble, but this isn't necessarily the case.

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