What does net worth represent for an individual or company?

Net worth is a financial metric that indicates the value of an individual or company by assessing their financial position at a specific point in time. It represents the difference between total assets and total liabilities. Assets include everything that has value and can be owned, such as cash, property, investments, and personal belongings. Liabilities encompass all debts and obligations that need to be paid back, like loans, mortgages, and credit card debt.

By calculating net worth (total assets minus total liabilities), one can gain insight into their financial health. A positive net worth means that an individual or company has more assets than debts, which is generally a favorable situation since it indicates financial stability. Conversely, a negative net worth means that liabilities exceed assets, which can signal financial distress or the need for better financial management.

The other choices describe aspects of financial situations but do not accurately define net worth. For example, gross income before expenses pertains to earnings without accounting for any deductions or obligations, and it doesn’t reflect the overall financial position. Total liabilities minus total expenses mixes elements of cash flow rather than providing a snapshot of financial health. Lastly, total cash reserves held by an individual only consider liquid assets, neglecting the complete picture of overall assets and liabilities.