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Net worth or net worth is the name it receives the total value of a company's assets after all its debts (liabilities) have been discounted. This amount includes any initial contribution from its founding partners that is not listed as a liability, as well as accumulated results or any other variation that may affect them.
On the other hand, operations for cash flow hedging or other similar that remain to be allocated in debit and credit, will not be considered part of the net equity. It is, in accounting terms, a patrimonial masswhat has balance creditor and whose general calculation formula is the following:
- Assets - Liabilities = Equity
Thus, accounts that signify an increase in net worth will be considered gains, while those that involve a decrease will be considered losses.
Traditionally, net worth is composed of the following accounts, divided according to their origin:
- Social capital.
- Bookings: affected retained earnings.
- Accumulated results: utilities devoid of specific affectation.
Main equity accounts
- Contributions from the owners. It is the initial capital contributed by the owners, also called initial equity.
- Profit reserves. The amount that is not distributed once the fiscal year is closed, either by company provisions, legal provisions or by the will of the partners. Depending on their origin and motivation, they can be legal reserves (mandatory), statutory reserves or optional reserves.
- Unallocated results. Accumulated gains or losses without a specific allocation, which may be earmarked for increase in capital, to dividend, the withholding as reserved profit (in case there are no legal commitments that prevent it) or it can continue to be assigned. Together with the profit reserves they constitute the retained earnings.
- Capital reserves. Formed by issue premiums, that is, the premium that an issuing entity imposes on the placement of the company's shares. These capital reserves do not come from the results.
