Net Present Value
Categories: Company Valuation, Financial Theory, Investing, Stocks, Metrics
NPV (net present value) is usually calculated using a formula and lots of charts and spreadsheets. (Helpful, we know.)
Basically, it compares the present cash value a company plans to invest and the expected returns on the investment.
Here's the catch: It considers the expected returns in today's cash value. If your company invests $1 million today and makes $2 million from the investment ten years from now, that $2 million will not be worth the same as $2 million today (thank inflation). NPV tries to account for this by figuring out what the returns would be in today's money, which makes it easier to tell whether a possible project or investment will be profitable or not.