Financial Terms / M - N / Net Present Value

Net Present Value

The Net Present Value (NPV) is a financial metric that aims to assess the current value of a future stream of payments. It is used to analyze the profitability of a potential investment or project.

For example, if you have an asset that gives you $10,000 in payments over the next six months and you have to pay $60,000 today, then considering no external factors like risk and inflation, the NPV of the asset is zero.

This calculation is correct because the sum of the future cash flows, when added up (10000*6), equals the current value you must pay to acquire the asset. NPV is an essential factor in calculating the discounted cash flow method of stock valuation.