Net Present Value (NPV)
Determine if a project is worth the investment. This tool discounts future earnings back to today's value to show you the real net gain or loss.
Future Cash Flows (Inflows)
What is Net Present Value (NPV)?
NPV is a financial metric used to determine the profitability of an investment or project. It calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
How do I interpret an NPV result?
A positive NPV indicates that the projected earnings (in today's dollars) exceed the anticipated costs, suggesting the investment is profitable. A negative NPV indicates a net loss, and an NPV of zero means the project is expected to break even.
What is the discount rate?
The discount rate is the interest rate used to "discount" future cash flows back to their present value. It often represents the cost of capital or the required rate of return for an investor.
Why is NPV better than simple profit?
Unlike simple profit, NPV accounts for the "time value of money"—the idea that a dollar today is worth more than a dollar in the future because of its potential earning capacity.