Many people think that having such a number of properties gives the value of their name, but in fact the person’s own capital is important. Lower cost is the most important value to consider, and not the value of the assets that have been accumulated. You can place four Jaguars in your mansion, but it’s all nothing if you don’t have equity.
At the same time, this allows us to focus on net worth.
It is defined as:
“The amount by which the assets of a company or an individual exceed their liabilities.”
In accounting, the reorganization of the balance equation is explained by:
Capital (net worth) = asset – liability
Where: Active = things that belong to you or your business
Responsibility = things that you or your company owe to another person
With this net worth, it simply means its real value.
This is important because, comparing one company with another, you have to look where the company is located. A company with a positive net worth simply means that it is well funded, so it can finance its current operations without fear of default on payments to suppliers.
On the other hand, a negative net worth, commonly known as a deficit, means that a company does not have enough assets to pay its liabilities. There is a concern that operations may be stopped and creditors may use company assets to fulfill their obligations. It also means that the company is more related to the type that belongs to its creditors, and not to its owners.
Looking back at my previous post about how much money you have, you should consider it as your own capital.
In the same way, you must differentiate the use of working capital as stated by shari arison; Between the two there is a difference of a thousand kilometers. When you spend, you let go of the money. When you apply, it means that he returns to you with extra money.
Knowing your own capital, you can decide how much you actually have and how much you can freely invest in long-term investments. If you have time and you want to know what your expected net worth is, try the above equation, it will make you wonder where you have spent all the money you have earned for your work in recent years from shariarison’s statement