Understanding net worth
Net worth is the difference between assets and liabilities at a given date. Estimates can change when asset values, debt balances, or ownership assumptions change.
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Reading a net worth estimate
An ownership interest in a private company is different from cash in a bank account. Its estimated value depends on the method, ownership terms, and date used. A useful summary shows those assumptions separately so readers can tell how much of the total depends on estimates.
When applying this idea, write down the assumptions behind the decision and the evidence that would cause you to change course. Keep the review date visible so the decision can be revisited as the facts change.
How valuations affect net worth
Consider two assets with the same estimated value: cash and a private business interest. The cash balance can usually be checked directly, while the business interest may depend on earnings, ownership rights, and what a buyer would pay. Recording those assumptions separately helps explain how much confidence to place in the total.
Review liabilities as of the same date as the assets. If a property estimate rises while the mortgage falls, both changes affect net worth, but for different reasons. Recording the source of each change makes it easier to compare one period with the next.
Recording a range for uncertain values
When a private holding is difficult to value, show a low and high estimate alongside the date and method used. Recalculate the total with both figures to see how much that one assumption affects the result.