Net Worth Statements

Ag Business Management

Spring 1999

Objectives

Distinguish between assets and liabilities. Give examples of each category of assets

and liabilities. Describe the structure and major

components of a balance sheet. Accurately transfer financial information to

a balance sheet.

Purpose of a Net Worth Statement

Shows financial condition at a specific point in time.

– Shows solvencysolvency (do assets exceed liab. ?)

– Measure liquidityliquidity (will firm meet financial obligations?)

Purpose of Net Worth Statement

Financial Condition - cont.

– Evaluate risk-bearing capacity (how much loss could business sustain?)

– Identify collateral (avail. to support loan)

– Compare records over time to see trends.

Components of Net Worth St.

Assets

Liabilities

Owner Equity

Assets

Current

– Used or sold and converted to cash within 12 months

Non-current

– Used in producing a product or not sold and not converted into cash within 12 months.

Liabilities

Current

– Payable within one year.

Non-current

– Due in more than one year.

Owner Equity

Total assets - Total liabilities

Same as Net Worth