Net Present Value (NPV): What It Means and Steps to Calculate It

What you need to know about differences over time

By  JASON FERNANDO

What Is Net Present Value (NPV)?

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.

NPV is the result of calculations that find the current value of a future stream of payments, using the proper discount rate. In general, projects with a positive NPV are worth undertaking while those with a negative NPV are not.

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