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Understanding Net Worth Statements for Business Management

Learn how to distinguish between assets and liabilities, understand balance sheet structure, and accurately transfer financial information to assess solvency and liquidity with a net worth statement. Evaluate risk capacity, identify collateral, and track business trends over time.

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Understanding Net Worth Statements for Business Management

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  1. Net Worth Statements Original PowerPoint Created by Mike White Modified by Georgia Agricultural Education Curriculum OfficeJune, 2002 Ag Business Management Spring 1999

  2. 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.

  3. Purpose of a Net Worth Statement • Shows financial condition at a specific point in time. • Shows solvency (do assets exceed liab. ?) • Measure liquidity (will firm meet financial obligations?)

  4. 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.

  5. Components of Net Worth St. • Assets • Liabilities • Owner Equity

  6. 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.

  7. Liabilities • Current • Payable within one year. • Non-current • Due in more than one year.

  8. Owner Equity • Total assets - Total liabilities • Same as Net Worth

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