What is a Deficit Net Worth?
A deficit net worth is basically a negative net worth. This type of situation exists when the amount of capital stock currently issued along with the other financial assets of the company, are not sufficient to offset the current liabilities of the company. While it is not unusual for successful companies to experience short term deficit net worth from time to time, the condition usually indicates there is a need to make changes in the general operating strategy of the company. Often, the reason for the creation of a deficit net worth has to do with some type of operating losses recently incurred by the company. The losses can sometimes be due to short term situations where new equipment has not been in use long enough to pay for itself. A sudden rise in the cost of raw materials can also create a deficit net worth by raising general operation expenses in the short term. The market for the goods or services produced may demand that the company lowers the price per unit in order to rema
