the assets less any debts with a pledge against those assets. This meaning is encapsulated in
the fundamental accounting equation, which defines the owner’s equity in the business as equal
to Assets minus Liabilities.
How does a business grow its Net Worth or Equity?
Businesses grow through building their Net Worth or Equity. A main goal of every business is to
see this growth. There are various ways a business can grow their Net Worth, most evident is to
decrease debt. This means a business will have more ownership in the businesses assets,
since less of the assets will be pledged to debt. The greatest contributor to the growth in a
business’s equity or net worth is retained earnings. The earnings of the business become equity
in the business in the form of retained earnings, which is listed as such under the equity section
of the Balance Sheet. Another way to grow a business’s net worth is through an outside capital
injection. This is most often money put into the business by ownership or by outside investors.
This normally shows as Capital under the equity section of the businesses Balance Sheet.
This represents a general overview and is not considered accounting advice. Please seek direction from
an accounting professional for detailed information regarding your business financials.