IT Financials Glossary

NPV (Net Present Value)

Posted in ROI by mgentle on August 26, 2010

NPV (Net Present Value): The present value (discounted at the required rate of return) of an investment’s future cashflows minus the initial investment. An NPV of zero means that the project pays for the original investment plus the required rate of return. A positive NPV means a better return, and a negative NPV a worse return.

NPV is a financial criterion for evaluating the profitability of a project investment. Note, though, that there are also other, non-financial, criteria for evaluating project investments (see “Combining costs and benefits” in Chapter 3).

FURTHER READING: for an explanation on the time value of money, which ends with an example of how to derive NPV, check out the following article by Michael Sack Elmaleh.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: