What is Net Present Value?

The net present value (NPV) is very important for business owners and investors to consider. It takes into consideration the future value of a dollar.

For example if a company is expecting to be making $2 million dollars in sales in the future how does that compare with today when you consider inflation. That $2 million dollars in the future may only be worth $1.5 million in today’s dollars.

This allows companies to plan ahead and it allows investors to get some sense of whether or not a company is growing.

Most individual investors would do well to pay attention to net present value. I often see people putting their money into the bank where they make 2% interest on their money while inflation is at 3%. That means they are losing money value in the long run.