Know about company's networth

airline IndiGo, Despite making a profit of ₹640 crore during the June quarter, the company reported negative networth to the tune of ₹139 crore as on its last balance sheet date.
In accounting terms, networth is the total owner’s capital invested in a company. Networth consists of both initial share capital raised from promoters and others, and the company’s profits accumulated over the years. Accumulated profits are also termed as reserves and surpluses. A company with negative networth is presumed to be on a weak footing.
Under normal circumstances, a company’s networth can change due to two factors — infusion of capital and the profits or losses from operations. Any addition to capital by way of a fresh share issue will result in an increase in networth. Likewise, if the company has surplus profit available after paying dividend to its shareholders, this will be transferred to its reserves and surplus, and increase its networth. If an enterprise reels under losses, that will lead to a depletion in the networth.

Besides all this, of course, if a firm decides to pay dividend far higher than the outstanding balance in its reserves and surplus account, it may lead to a negative or deficit networth.

While the Interglobe case was an exception, it is usually chronically[kró-ni-k(u-)lee(usual,long,पुराना,चिरकालिक)] loss-making companies that carry negative networth in their balance sheet. Networth per share, which is also called book value per share, is used to gauge[geyj(guess,अनुमान)] the intrinsic value of a company’s business as well.
If you are an equity investor, it is pertinent[pur-ti-nunt(relevant,उपयुक्त)] to keep a tab on your company’s networth. It will tell you if there are any assets left for you as a shareholder, should the company’s operations become unviable[vI-u-bu(possible,संभव)] and warrant closure. If the company’s networth is negative or deficit and the entity makes losses, it may be a warning signal for you as an investor to exit your investment.
The IndiGo case showed that you cannot judge a company by its networth alone.

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