1. What is the Net Worth Ratio?

The Net Worth Ratio measures the financial health of a credit union by calculating net worth relative to total assets, expressed as a percentage. It indicates the credit union's capital adequacy and financial stability.

2. How Does the Calculator Work?

The calculator uses the Net Worth Ratio formula:

Where:

• \( \text{Net Worth} \) — Total net worth of the credit union (USD)
• \( \text{Total Assets} \) — Total assets of the credit union (USD)

Explanation: This ratio shows what percentage of the credit union's assets is financed by member capital rather than debt.

3. Importance of Net Worth Ratio

Details: The Net Worth Ratio is a key regulatory metric for credit unions, used to assess financial health, determine regulatory compliance, and evaluate the institution's ability to absorb potential losses.

4. Using the Calculator

Tips: Enter net worth and total assets in USD. Both values must be positive numbers, with total assets greater than zero for valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Net Worth Ratio for credit unions?
A: Generally, a ratio above 7% is considered well-capitalized, while ratios below 6% may indicate potential regulatory concerns.

Q2: How often should credit unions calculate this ratio?
A: Credit unions typically calculate this ratio quarterly as part of their regulatory reporting requirements.

Q3: What factors can affect the Net Worth Ratio?
A: Member deposits, loan performance, investment returns, operational expenses, and capital reserves all impact this ratio.

Q4: How does this differ from bank capital ratios?
A: While similar in concept, credit union net worth ratios have different regulatory requirements and calculation methods compared to bank capital adequacy ratios.

Q5: Can this ratio be too high?
A: Excessively high ratios may indicate underutilization of capital, potentially limiting growth opportunities and member benefits.