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What is net present value?

Management Dictionary
Accounting and editing, Corporate and Market Finance, Entrepreneurship, Management Control

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Net present value (NPV) evaluates the profitability of an investment by comparing current and future cash flows, adjusted for the cost of capital. Based on the time value of money, it allows a rigorous comparison of the benefits and costs of investments. Despite its ability to provide a clear measure of profitability and support decision-making, NPV strongly depends on estimates of future cash flows and the choice of discount rate, which can lead to suboptimal decisions. In addition, it does not take into account strategic or qualitative considerations. Nevertheless, NPV remains an essential tool in corporate financial decision-making.

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discounting of cash flows, present value

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BESANGER Serge

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INSEEC-U

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