Net Worth Is Owners Equity, Not Retained Earnings Only
Net worth equals total assets minus total liabilities. In accounting, this is owners equity. Retained earnings are only one part of equity, not the whole definition.
How Owners Equity Includes Retained Earnings
Owners equity is made up of contributed capital, additional paid-in capital, and retained earnings. Retained earnings are profits kept in the business after dividends. They increase equity but do not define it alone.
Why Confusing Net Worth with Retained Earnings Is Wrong
Using only retained earnings ignores other equity items and liabilities. Net worth reflects the full residual value for owners after all debts are paid. For a clearer view of financial position, see the Investopedia definition of net worth.
