In accounting, what does 'net worth' represent?

Net worth represents the financial position of an individual or organization, reflecting the difference between what they own and what they owe. Specifically, it is calculated as total assets minus total liabilities. This means that to determine net worth, you would take the total value of all assets owned—such as cash, real estate, and investments—and subtract any obligations or debts that are owed, which are the liabilities.

This figure is important because it gives a snapshot of financial health; a positive net worth indicates that assets exceed liabilities, while a negative net worth implies the opposite. In contrast, other options focus on measures of income, revenue, or cash flows rather than the overall financial stance derived from the relationship between assets and liabilities. Understanding net worth is crucial for both individuals and businesses when evaluating financial stability and planning for the future.