If a person says they are worth $10 billion but they own a US company that is privately held, (making it a pass-through entity) and that company owes $20 billion, how is that person allowed to say they are a billionaire? Thank you. Btw: this is an ACCOUNTING question, not a POLITICS question.
In: Economics
Net worth or personal net worth claims are simply that. It isn’t regulated or bound in some legal definition.
If some independent person or group wants to estimate (and it is always an estimate) someone’s net worth, it is usual to have a separate valuation for their private assets – which may include a private company.
For the most part, there are many ways of valuing a company and for a private company, it isn’t bound by any accounting requirement. Going by accounting methods, the simplest method is the net book value (assets – liabilities) or owner’s equity. This is somewhat crude and not particularly useful for many knowledge based companies. Other methods could include earnings multiples, discounted cash flow etc etc. These will give a range of results any of which one can claim to be a valuation.
Net worth claims are simply that, statements that can have as many interpretations as there are people. They aren’t written in stone.
Latest Answers