BUSINESS INSIGHT: WHY YOU SHOULD KNOW YOUR BUSINESS’ NET WORTH
Many businesspeople in Nigeria and most parts of Africa habitually measure their wealth based on the amount of profit they make daily. This ideology could be due to little or no knowledge in wealth evaluation. It could come as a shock to an average businessperson in this part of our continent that the standard for evaluating wealth is one’s net worth.
Nevertheless, in that cluster of wealth cluelessness, some African entrepreneurs like Aliko Dangote, Nicky Oppenheimer, Johann Rupert, Nassef Sawiris, Natie Kirsh and Naguib Sawiris keep challenging the status quo and have grown their net worth into world standard. They have diligently built enterprises that maybe based in Africa but compete globally.
According to Bloomberg Billionaire Index, as at 25th of February 2019, Dangote’s net worth was reported to have increased to 17bn USD. This retained his position as the richest man in not just Nigeria but in Africa as a whole.
Bloomberg, stated that the net worth figures on their platform are updated every business day after every trading day in New York, with assets categorised as publicly traded companies, private assets like businesses, art and real estate, cash and other liquid investments and liabilities.
The above explains net worth a bit but let us simplify the term. According to Wikipedia, net worth is the value of all the non-financial and financial assets owned by an institutional unit or sector minus the value of all its outstanding liabilities.
The net worth of a business captures its financial health, which consist of assets and liabilities. Your net worth indicates the financial performance and valuation of your business. Your net worth is one of the determining factors that either encourages investors or stops them from investing in your business. In order to stay abreast with your financial growth, you must constantly analyse your net worth.
To analyse your net worth, you must differentiate what your assets and liabilities are. They are the two factors used to calculate net worth. Let us quickly define what these terms mean.
Assets are valuable items that increase the inflow of cash in the organisation. While liabilities are items that add debts to the business, thereby decreasing the flow of cash. Calculating the net worth of a business or person involves subtraction of the total liability from the total asset.
A clear representation of the above is; NET WORTH = ASSETS – LIABILITIES.
Observing the net worth formula closely, you will understand that more effort needs to go into getting more assets than liabilities. When your assets are greater than the liabilities, the net worth is a positive number.
Increasing your business’ net worth never happens overnight. Before one can accumulate wealth, it is more rewarding and sustaining to acquire financial knowledge and discipline. Still building your net worth is not an impossible task.
Written by Jennifer Chioma Amadi
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