How is net worth calculated?

• A. Total assets divided by total liabilities
• B. Total assets minus total liabilities
• C. Cash flow plus investments
• D. Total assets minus total liabilities

Answer: (D)

Net worth is the value of what you own after you subtract what you owe. To calculate it, add up all your assets—cash, savings, investments, real estate, cars, and other items of value—and then subtract all liabilities, such as loans, mortgages, and credit card balances. The result is a single number that shows your financial position at a given moment. It’s a snapshot, not a measure of monthly cash flow or a ratio.

Dividing total assets by total liabilities would give a ratio, not the net amount of value. Cash flow plus investments describes income and growth over time, not the stock of value you’ve accumulated. Therefore, the method that subtracts liabilities from assets is the correct way to determine net worth.