Effective Net Worth

DEFINITION of 'Effective Net Worth'

The shareholders' equity of a corporation, plus subordinated debt. Effective net worth is particularly useful in closely held corporations, since executive officers in these entities are also its owners. Subordinated debt can include debentures or loans to the firm by an owner. Such owners' loans are considered an extension of the company's net worth, provided a subordination agreement is already in place.

BREAKING DOWN 'Effective Net Worth'

For example, a closely held corporation with total assets of $10 million and total liabilities of $6 million would have a net worth of $4 million. Assume total liabilities include subordinated loans such as debentures and loans from owners of $1 million. Effective net worth in this case would be $5 million.  If you're looking to track your personal net worth, use our free Net Worth Tracker which allows you to calculate, analyze and record your net worth for free.

RELATED TERMS
  1. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) ...
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a ...
  3. Subordinate Financing

    Debt financing that is ranked behind that held by secured lenders ...
  4. Convertible Subordinate Note

    A short-term debt security that can be changed into common stock. ...
  5. Tangible Net Worth

    A measure of the physical worth of a company, which does not ...
  6. Subordination Clause

    A clause in an agreement which states that the current claim ...
Related Articles
  1. Investing

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  2. Investing

    The Importance Of Knowing Your Net Worth

    It is vital that you track your net worth no matter what your age.
  3. Retirement

    What's Your Net Worth Telling You?

    Net worth provides a road map for retirement - learn if you're headed in the right direction.
  4. Investing

    What is Net Worth?

    Net worth is the amount by which assets exceed liabilities. Another way to say this is, it's the value of everything you own, minus all your debts.
  5. Investing

    Assets That Increase Your Net Worth

    Your home, properties and vehicles can all increase your net worth.
  6. Investing

    The Complete Guide To Calculating Your Net Worth

    Here's everything you need to know about calculating your net worth.
  7. Investing

    The Complete Guide To Calculating Your Net Worth: Calculating Your Net Worth

    Calculating your net worth involves subtracting your liabilities from your assets. If you have more assets than liabilities, you have a positive net worth. Conversely, if you have more liabilities ...
  8. Investing

    The Complete Guide To Calculating Your Net Worth: Introduction

    Net worth is the amount by which assets exceed liabilities. In other words, your net worth is the difference between what you own and what you owe. Calculating your net worth can be a useful ...
  9. Investing

    The Complete Guide To Calculating Your Net Worth: What Your Net Worth Means

    If your net worth is a negative number, your liabilities exceed your assets. If your net worth is positive, your assets are greater than your liabilities. Keep in mind, your net worth figure ...
  10. Investing

    What High Net Worth Means

    A high net worth individual is someone with many liquid financial assets.
RELATED FAQS
  1. What is the difference between subordinated debt and senior debt?

    Understand the difference between subordinated debt and senior debt. Learn what a company is required to do in case of bankruptcy. Read Answer >>
  2. What are common factors that lower your net worth?

    Net worth is determined by calculating financial assets versus liabilities. As the liabilities increase versus the assets, ... Read Answer >>
  3. How is a debenture stock different from a regular debenture?

    Learn to differentiate between standard debentures and debenture stocks, which are equities that act more like preferred ... Read Answer >>
  4. What does your net-worth consist of?

    Discover what your specific assets and liabilities are and how to classify the components that go into calculating your net ... Read Answer >>
  5. How risky is it to enter into a debenture agreement?

    Understand the nature of debenture agreements and the inherent risks and clauses that may provide additional protection for ... Read Answer >>
  6. What are the differences between preference shares and debentures?

    Learn why preference shares are equity securities and debentures are debt securities. Understand the differences between ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center