The correct answer is: D. total assets – total external liabilities
Net worth is the difference between a company’s total assets and its total external liabilities. It is also known as shareholders’ equity or book value. Net worth is a measure of a company’s financial health and is used to calculate a number of financial ratios, such as the debt-to-equity ratio.
A company’s assets are the things it owns that have value, such as cash, inventory, and equipment. A company’s liabilities are the things it owes, such as accounts payable and long-term debt. A company’s net worth is calculated by subtracting its liabilities from its assets.
For example, if a company has $100,000 in assets and $50,000 in liabilities, its net worth would be $50,000.
Net worth is an important measure of a company’s financial health because it shows how much money the company would have left over if it were to sell all of its assets and pay off all of its liabilities. A company with a high net worth is generally considered to be financially healthy, while a company with a low net worth may be in financial difficulty.
Here is a brief explanation of each option:
- A. equity capital is the money that shareholders have invested in a company. It is calculated by multiplying the number of shares outstanding by the price per share.
- B. total assets are the things a company owns that have value, such as cash, inventory, and equipment.
- C. fixed assets – current assets is not a valid measure of net worth. Fixed assets are assets that are not expected to be converted into cash within one year, such as land and buildings. Current assets are assets that are expected to be converted into cash within one year, such as cash, inventory, and accounts receivable.
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