What is the net worth

Net worth

Net worthis the assets of a company, a state or a private person that remain after deducting all liabilities. In general, the term net worth is a so-called indefinite legal term that is used in various areas of law, but for which it is used no legal definition (= legal definition) there. The term net worth or net worth is used not only in the financial accounting of companies, but also, for example, for private and public households. In the case of public budgets, the calculation of net worth is carried out in a similar way to that of a company. The net wealth of public households is calculated simply by subtracting the national debt from the national wealth.

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Use of the term net worth in business administration

The Net worthor Net worth is a term used in financial accounting and economics to denote the difference, i.e. the balance between the assets of a company shown on the assets side of a balance sheet and the liabilities shown on the liabilities side of the balance sheet. In English, the net worth is referred to as "net worth"(Net value) or"net assets“(Net Assets).

In most cases this is the sameNet worththe equity of a company. The equity corresponds to the balance of the gross assets of the company and the debts. If shareholders finally waive the payment of profit shares, then these will be Profit shares added to equity and thus to the company's net assets. Provisions that are formed from profits are not added to net assets. Provisions are counted as liabilities and therefore reduce the net worth.

Importance of net worth in bankruptcy law

Whether a company has to file for bankruptcy essentially depends on whether the company still has net assets. If the net assets in the so-called overindebted status are negative, i.e. the debts exceed the assets, then there is definitely a reason for filing for bankruptcy. In this case, the reason for insolvency is independent of whether the company has a positive or negative forecast with regard to its continuation. The entrepreneur is not obliged to file for insolvency if the net assets are positive, but the forecast for going concern is negative. Likewise, there is no obligation to file for bankruptcy if the prognosis and net worth are positive.

Importance of net worth in inheritance law

The debts, the so-called Estate liabilities deducted to determine the net worth of the inheritance. For example, if the testator leaves assets of 500,000 euros in the form of shares, cash and a property, but there is still a residual debt from the financing of 150,000 euros for the property, then these 150,000 euros are deducted from the inheritance as liabilities. The Determination of net worth is particularly important for the amount of any inheritance tax to be paid.

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