 In this section, I will be explaining how net worth helps in reducing adverse selection. So net worth is basically that is also called equity capital and it is a difference between a firm's assets and the firm's liabilities. It means what the firm owns and what the firm owns. How much the firm owns and how much the firm owns. We will explain the difference between these two. So you will get to know equity capital or we call it book value or we call it net worth. So when we have to decide that we have to invest in a certain invest in the shares issued by a certain firm we look at the value of its net worth. So if the net worth is low and its value is very low it means that it does not have so many assets that if it is damaged then you are able to do something with it. So this is an important variable to look at that if the net worth is sufficiently high and the security that you have invested if the gans of that investment becomes a disadvantage or a loss or anything then they still have so many assets that they can sell them and use them to fulfill your loss. So this is an important indicator that when your firm in which you are investing it is an important indicator that we need to look at the value of net worth because if the net worth is higher then the probability that you will end up in losses by investing in that particular firm becomes very low as compared to a firm whose net worth is quite low so this particular aspect also helps us in reducing the probability of adverse selection to a greater extent although it will not be completely eliminated and with this particular concept which we often see that it is said that those firms already financially become very strong only they get loans and they invest and the weak firms they avoid so the basic reason behind that is that smart investors look at the values of net worth and then they decide accordingly