Net Worth

A company's net worth is the retained earnings, or the amount left after dividends are paid, plus the money in its capital accounts, minus all its short- and long-term debt. Net worth is an important determinant of the value of a company, considering it is composed primarily of all the money that has been invested since its inception, as well as the retained earnings for the duration of its operation. Net worth can be used to determine creditworthiness because it gives a snapshot of the company's investment history.

Net worth is an important determinant of the value of a company, considering it is composed primarily of all the money that has been invested since its inception, as well as the retained earnings for the duration of its operation.

Net worth = Assets - Liabilities

Owner's equity, also known as stockholder equity, is the amount that a company is worth to stockholders, amount that the business assets exceed business liabilities. It is the portion of that value that the owners (shareholders) presently own outright, free of any debts or obligations. It can include accounts such as the owner’s investment and the earnings reinvested into the business’s operations. Examples of owner’s equity are net worth and capital.

It equals the net worth of the company. So if a company's net worth increases from $1 million to $1.4 million during a single year, the owner's equity in the company also increases from $1 million to $1.4 million. This increase generally causes a rise in stock prices, which results in profits for current stockholders.

Owner's equity, in turn has two components:

Owners equity = Contributed capital + Retained earnings