Business, finance and operations
Net present value (NPV)
The value today of future cash flows from an investment, minus its cost, after accounting for the fact that money received later is worth less than money received now.
- Business, finance and operations
Definition
The value today of future cash flows from an investment, minus its cost, after accounting for the fact that money received later is worth less than money received now. A positive NPV suggests the investment adds value.
Also called
NPV, Net present value
Example
€110k received in one year at a 10% discount rate is worth €100k today, so a €90k investment has an NPV of €10k.
For your role
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Why it matters
It shows whether an investment creates value once the time value of money is considered.
Where it is used
Investment appraisals and board business cases.
How to calculate it
Present value of future cash flows − initial investment
Worked example
€110k received in one year at a 10% discount rate is worth €100k today, so a €90k investment has an NPV of €10k.