Negative net worth of a company...that's when this happens. You know the key formula, ALE: Assets minus Liabilities equals Equity. In this case, liabilities are larger than assets, so from an accounting perspective, the company is, well, worthless. Sorry. Just keepin' it real, sad company.
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Finance: What is Net Worth?185 Views
Finance a la shmoop what is net worth?
well net worth refers to the value of something like if you have 10 million
bucks in assets and 2 million in debt your net worth is 8 million 10 months -
bigger example you're a wealthy real estate mogul different kind of mogul [person skiing down a mountain]
this kind you have 3 billion dollars worth of buildings so how do we know
there were 3 bill well we have a bevy of active buyers willing to pony up cash [buyers cuing up to buy a building]
for the marquee trophy real estate between 5th and central park we also
know it's worth this much just by using a discounted cash flow analysis anyway
the buildings show profits of 200 million bucks a year and the going rates [Building with a fore sale sign of 3 billion dollars]
for these buildings is about 3 billion or 15 times that unleveraged number
there's a new term unleveraged well unleveraged means that the buildings [a bird swooping into the buildings window]
carry no debt which is unusual for real estate because with such steady
recurring predictable revenues and profits on long term leases there are
generally good candidates for taking on lots of relatively cheap debt you know [A building being compressed by debt]
in banks generally like lending to real estate projects so the three billion
gross or total worth of these buildings is the net worth as well because there's [Dollar signs raining from the sky onto the buildings]
no debt to subtract they're unleveraged but what if the mogul decided he wanted
to buy 2 billion dollars worth more of buildings and he decided to pledge his [mogul attempting to buy more buildings]
existing unleveraged 3 billion dollars worth of building as collateral so he
can take out loans that are bigger right well then he went to Vegas put all 2 [Mogul with a wheelbarrow of cash gambling in vegas]
billion on 17 black and lost well the good news he just made a lot of new
friends at that casino the bad news well he's lost a whole 2 billion and he still [Mogul losing 2 billion dollars on the roulette]
has to pay it all back his net worth just went down to 1 billion because you
take the 3 billion dollar value of his real estate subtract the 2 billion in
loans he still has to pay off now and yeah we know he never bad on [White roulette ball landed in 17 black]
everything's everything black but this guy did and well you know the dance [Owner of the casino victory dancing in front of the mogul]
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