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Finance: What is Net Worth? 185 Views


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Description:

What is net worth? You own $100,000,000 worth of Coke stock. That's the good news. Unfortunately, you also have $90,000,000 in debt. Your net worth is $10,000,000.

Language:
English Language

Transcript

00:03

Finance a la shmoop what is net worth?

00:07

well net worth refers to the value of something like if you have 10 million

00:11

bucks in assets and 2 million in debt your net worth is 8 million 10 months -

00:17

bigger example you're a wealthy real estate mogul different kind of mogul [person skiing down a mountain]

00:22

this kind you have 3 billion dollars worth of buildings so how do we know

00:26

there were 3 bill well we have a bevy of active buyers willing to pony up cash [buyers cuing up to buy a building]

00:30

for the marquee trophy real estate between 5th and central park we also

00:35

know it's worth this much just by using a discounted cash flow analysis anyway

00:39

the buildings show profits of 200 million bucks a year and the going rates [Building with a fore sale sign of 3 billion dollars]

00:43

for these buildings is about 3 billion or 15 times that unleveraged number

00:49

there's a new term unleveraged well unleveraged means that the buildings [a bird swooping into the buildings window]

00:54

carry no debt which is unusual for real estate because with such steady

00:59

recurring predictable revenues and profits on long term leases there are

01:04

generally good candidates for taking on lots of relatively cheap debt you know [A building being compressed by debt]

01:09

in banks generally like lending to real estate projects so the three billion

01:13

gross or total worth of these buildings is the net worth as well because there's [Dollar signs raining from the sky onto the buildings]

01:17

no debt to subtract they're unleveraged but what if the mogul decided he wanted

01:22

to buy 2 billion dollars worth more of buildings and he decided to pledge his [mogul attempting to buy more buildings]

01:28

existing unleveraged 3 billion dollars worth of building as collateral so he

01:34

can take out loans that are bigger right well then he went to Vegas put all 2 [Mogul with a wheelbarrow of cash gambling in vegas]

01:38

billion on 17 black and lost well the good news he just made a lot of new

01:43

friends at that casino the bad news well he's lost a whole 2 billion and he still [Mogul losing 2 billion dollars on the roulette]

01:48

has to pay it all back his net worth just went down to 1 billion because you

01:52

take the 3 billion dollar value of his real estate subtract the 2 billion in

01:56

loans he still has to pay off now and yeah we know he never bad on [White roulette ball landed in 17 black]

02:00

everything's everything black but this guy did and well you know the dance [Owner of the casino victory dancing in front of the mogul]

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