Net Present Value (NPV)

The net present value (NPV) is the present value of the expected cash flows from a business case investment, minus the initial investment. It is a measure of the profitability of an investment, taking into account the time value of money.

To calculate the NPV, you need to know the initial investment, as well as the expected cash flows from the investment over time. You also need to know the appropriate discount rate to use, which represents the time value of money and the risk associated with the investment.

The NPV is calculated by taking the sum of the discounted cash flows and subtracting the initial investment. If the NPV is positive, the investment is expected to generate more cash than the initial investment. If the NPV is negative, the investment is expected to generate less cash than the initial investment.

The NPV is an essential tool for evaluating investment opportunities during the business case process, as it takes into account the time value of money and the risk associated with the investment. It is often used in conjunction with other measures, such as the internal rate of return (IRR) and the net present value index (NPVI), to make informed investment decisions.


NPV vs. IRR

NPV is considered superior to IRR in business cases because it provides a more accurate assessment of an investment's value by considering the scale of the investment and the cost of capital directly, rather than relying on the percentage return alone.


The Financial Analysis Templates calculate NPV and IRR.