In: Finance
1) Why is your personal Net Worth important to know?
2) Why should a business owner understand their Net Worth?
3) Why is your personal Income Statement important to know?
4) Why is a business' Income Statement important to an investor?
1). Personal net worth is important because it provides an estimate of your financial situation at a given point in time. If it is negative then your liabilities exceed your assets which is an indicator to take stock of your finances, boost your income and save more. Similarly, a positive net worth denotes that your assets are greater than your liabilities which helps you to analyze if you are earning as per your earning potential, or if any course correction is needed to further increase your net worth.
2). It is important for a business owner to understand their net worth because it provides a snapshot of the company's finances at a point in time. It helps the owner to evaluate how the business is doing, if it is generating enough equity for owners or some course correction is needed in terms of re-evaluating debt or putting more funds into the business.
3). An income statement is a a statement of earnings and expenses over a period of time. For a person, it is important to keep track of finances so as to know whether one is spending more than one is earning, whether one has debt to pay off (like credit card, home loan, etc.), whether one is saving enough to meet one's future financial requirements. If the income statement analysis points to any of these, then one has to accordingly change expenses/savings, etc. Thus a personal income statement is a handy tool for making financial decisions.
4). The income statement of a business is important for an investor because it helps the investor to decide if the business is generating enough profit, is the company operationally/financially efficient and if it is a good business to invest in.