Finance · Glossary
What is NPV (Net Present Value)?
Quick definition
The difference between the present value of cash inflows and outflows over time. Positive NPV = profitable project.
Full explanation
NPV (Net Present Value) is the sum of all future cash flows from a project, discounted back to the present, minus the initial investment. A positive NPV means the project creates value; a negative NPV means it destroys value. NPV accounts for the time value of money — a dollar next year is worth less than a dollar today. Discount rate is critical: a 5% discount rate vs 10% can flip a project from positive to negative NPV. NPV is the gold standard in capital budgeting, but it requires picking a discount rate (usually the company's cost of capital or WACC). Use NPV alongside IRR for project evaluation.
Related calculators
Calculators that use or explain NPV.
Related terms
More from Finance
APR (Annual Percentage Rate)
The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.
APY (Annual Percentage Yield)
The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.
Compound Interest
Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.
Principal
The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.
Amortization
Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.
Last reviewed: June 15, 2026 • Category: Finance