A measure of someone’s financial wealth, calculated by subtracting liabilities from assets, offers a snapshot of their overall financial standing. This calculation encompasses the total value of all possessions, including investments, real estate, and other holdings, minus any outstanding debts or obligations. Understanding this metric provides valuable insights into an individual’s financial health and potential for future growth. It’s a key indicator used by financial institutions and investors alike.
For instance, a business owner might have a high net worth due to the value of their company, even if their current income is modest. Conversely, someone with a high salary but significant debt might have a lower net worth. This distinction highlights the importance of considering both assets and liabilities when assessing financial well-being.