What does net worth represent?

Net worth represents the difference between total assets and total liabilities. This financial metric is crucial as it provides a clear snapshot of an individual's or entity's overall financial health at a specific point in time. When you calculate net worth by subtracting total liabilities (what you owe) from total assets (what you own), you can determine whether you have a positive or negative net worth, which indicates your financial position.

Having a positive net worth means that your assets exceed your liabilities, suggesting that you are in a good financial state. Conversely, a negative net worth indicates that your liabilities surpass your assets, highlighting potential financial distress.

The other choices, while relevant to financial discussions, don’t accurately define net worth. Total income minus expenses reflects cash flow rather than net worth, while total investments plus cash does not account for liabilities, making it an incomplete measure. Total debts minus savings is similarly not a recognized calculation for net worth, as it focuses only on a narrow aspect of financial health without considering assets.