A person’s financial standing is often assessed by calculating the total value of their assets minus their liabilities. Assets can include tangible items like real estate and vehicles, as well as intangible holdings such as investments and intellectual property. Liabilities, on the other hand, represent outstanding debts, loans, and other financial obligations. The resulting figure provides a snapshot of an individual’s overall wealth at a specific point in time. For example, someone with significant real estate holdings but substantial mortgage debt might have a lower net worth than someone with fewer assets but no debt.
Another example is an entrepreneur who owns a successful business. The net worth calculation would consider the value of the company, including its physical assets, intellectual property, and projected future earnings, while also accounting for any business loans or outstanding debts. This calculation provides a more comprehensive picture of their financial health than simply looking at their annual income.