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What is a Statement of Net Worth?
A statement of net worth provides a snapshot of a person’s or business’ financial wealth. Statements of net worth are calculated by adding the value of all non-financial and financial assets owned by them and then subtracting the value of all its outstanding liabilities.
A statement of net worth is essentially a snapshot of a person’s or businesses’ financial position at any given point in time.
You can read more on net worth here .
How To Calculate a Statement of Net Worth
There are four steps to writing a statement of net worth:
- Calculate value of your assets : List your assets on a net worth statement. Using the current market value for each item, calculate the total value of all assets owned by you. Items like insurance policy also have a cash value which can be found on a schedule in the policy. Similarly, mutual funds, stocks, and bonds also have cash values that can be found on their quarterly reports.
- Calculate your Liabilities : Your liabilities should also be listed on your net worth statement. The balance owed on debts or credit cards, principle owed on a mortgage or real estate loan is considered a liability.
- Calculate the value of assets after subtracting liabilities: You will need to subtract the value of your liabilities from the value of your assets to determine your net worth. A negative net worth occurs when the total debt is more than the total assets. It is a sign that the company or individual needs to reduce their debt.
- Monitor your net worth annually: Complete a net worth sheet annually as your assets and liabilities might change or the values might change over time.
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What’s Included in a Statement of Net Worth
A statement of net worth largely includes assets and debts of an individual or business. Here are some types of assets and debts that might be included in a net worth statement:
- Savings & Checking Accounts
- Investments
- Life Insurance Policy
- Retirement Funds
- Personal Property
- Real Estate
- Credit Card Bills
- Mortgage Balance
- Car Loans
- Unpaid Taxes
- School Loans
A statement of net worth will include balance sheets, income statements and cash flow statements.
- Balance sheets : Balance sheets provide detailed accounting of a company or individual’s assets, liabilities and shareholders’ equity. Shareholders’ equity refers to the value that will be left if a company sells all its assets and pays off all its liabilities. This leftover money will belong to the shareholders of the company.
- Income statements : An income statement shows how much revenue a company made in a certain time period. In the case of an individual, it shows the amount of money earned by the individual in the time period.
- Cash flow statements : Cash flow statements report on a company’s inflows and outflows of cash. Cash flow statements can help determine if a company generated any cash. Cash flow statements can reflect the changes over time in income statements and balance sheets.
You can learn more about preparing your own statement of net worth here .
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Types of Statements of Net Worth
Types of statements of net worth can differ by entity. Companies, individuals, governments and countries use net worth statements in different ways. Here are how net worth statements are used by different entities:
Companies
Net worth in businesses is also known as equity. It is based on the value of assets and liabilities at the value expressed on financial statements. If items on the balance sheet do not express their true value, the net worth will also be inaccurate. If the accumulated losses exceed the shareholder’s equity in a company, the net worth becomes negative. Net worth here doesn’t express market value of the company as it may still sell for more if traded.
Individuals
For individuals, the net worth statement refers to the net economic value or the individual’s total assets minus the liabilities. Net worth statements can help individuals determine their financial status and plan for their future financial goals.
Governments
A government’s net worth, or a balance sheet of all assets and liabilities, is used to measure a government’s strength. Most governments use an accrual-based accounting system to provide transparency. Some might utilize cash accounting to better predict future fiscal events. Consistent accounting is necessary to determine the total net worth of a government.
Countries
A country’s net worth is the total net worth of all companies and individuals residing in the company plus the government’s net worth.
You can read more on types of statements of net worth here .
When Do You Need a Statement of Net Worth?
A net worth statement can help you measure progress towards long term financial goals. It can also help you keep track of your debts. If you are building wealth, you will also see your net worth statement changing. Having multiple savings, investments and debts can be difficult to manage. A net worth statement can help see your total financial situation.
A net worth statement also contains the value of your home and contents and can help you decide the homeowner’s insurance you will need to purchase. The total of your liquid assets can also provide information on how prepared you are for an emergency. A statement of net worth can also help you analyze your retirement savings or create future financial plans.
Companies use statement of net worth to assess the value of the company. Governments and countries also use statement of net worth to assess government debt.
Statement of net worth can often be required by lenders or investors to assess risk in providing an individual or business a loan. Scholarships and financial aid applications can also require net worth statements to assess eligibility. For the deceased, net worth statements can be used to assess value of their estate when in probate.
You can read more on net worth statements here .
Get Help With a Statement of Net Worth
Do you have any questions about statement of net worth and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from estate planning lawyers and probate lawyers who specialize in statement of net worth.
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I am an attorney located in Denver, Colorado with 13 years of experience working with individuals and businesses of all sizes. My primary areas of practice are general corporate/business law, real estate, commercial transactions and agreements, and M&A. I strive to provide exceptional representation at a reasonable price.
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George is a lifelong Houston resident. He graduated from St. Thomas High School and then Texas A&M University. He obtained his Doctor of Jurisprudence from South Texas College of Law in 2007. He is experienced in real estate, estate planning & probate, civil/commercial matters, personal, injury, business matters, bankruptcy, general counsel on-demand, and litigation. He is active in the community serving as past-president of the St. Thomas Alumni Board, a current member of the Dads Club Aquatic Center Board of Directors, current member of the Dickinson Little Italy Festival of Galveston County Board of Directors, and former PTO President for Briarmeadow Charter School.
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My clients are often small and medium size technology companies, from the "idea" stage to clients who may have raised a round or three of capital and need to clean up a messy cap table. I help with all legal matters related to growth that keep founders up at night - hiring people, allocating equity, dealing with shareholders and investors, client negotiations and early litigation counseling (before you need a litigator). I've seen a lot, and because I run my own business, I understand the concerns that keep you up at night. I’ve been through, both on my own and through other clients, the “teething” pains that will inevitably arise as you scale-up – and I’m here to help you. I have over 20 years international experience devising and implementing robust corporate legal strategies and governance for large multinationals. I now focus on start-ups and early/medium stage technology companies to enable a sound legal foundation for your successful business operations. Many of my clients are international with US based holding companies or presences. My 17 years abroad helps me "translate" between different regimes and even enabling Civil and Common Law lawyers to come together. Regularly, I handle early stage financings including Convertible Notes, Seed and Series A/B financings; commercial and technology contracts; international transactions; tax; mergers and acquisitions.
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