Which of the following identifies the sum total of a business's assets minus its liabilities?

Which of the following identifies the sum total of a business's assets minus its liabilities?

• A. Revenue
• B. Net worth
• C. Gross profit
• D. Net income

Answer: (B)

The correct answer identifies the financial metric known as net worth. Net worth represents the total value of a business after all liabilities have been subtracted from its assets. It effectively provides a snapshot of the company's financial health, indicating how much the owners would have left if they sold all of the assets and paid off all of the debts. Understanding net worth is crucial for stakeholders, including investors and creditors, as it reflects the value the business has built. It allows for an assessment of the company's financial stability and can guide decisions regarding investment, lending, and management. In contrast, revenue refers to the total income generated from sales of goods or services before any expenses are deducted. Gross profit is the revenue remaining after deducting the cost of goods sold but does not account for other expenses or liabilities. Net income is the profit remaining after all operating expenses, taxes, and costs have been deducted, which again does not consider liabilities in relation to assets. Each of these other terms plays an important role in the financial evaluation of a business but does not directly reflect the overall value in the same way that net worth does.

The correct answer identifies the financial metric known as net worth. Net worth represents the total value of a business after all liabilities have been subtracted from its assets. It effectively provides a snapshot of the company's financial health, indicating how much the owners would have left if they sold all of the assets and paid off all of the debts.

Understanding net worth is crucial for stakeholders, including investors and creditors, as it reflects the value the business has built. It allows for an assessment of the company's financial stability and can guide decisions regarding investment, lending, and management.

In contrast, revenue refers to the total income generated from sales of goods or services before any expenses are deducted. Gross profit is the revenue remaining after deducting the cost of goods sold but does not account for other expenses or liabilities. Net income is the profit remaining after all operating expenses, taxes, and costs have been deducted, which again does not consider liabilities in relation to assets. Each of these other terms plays an important role in the financial evaluation of a business but does not directly reflect the overall value in the same way that net worth does.