Net Present Value (NPV)

Net present value (NPV) is a measurement used to analyze cash flows over a specified period, aiding in the assessment of profitable budgeting strategies and capital allocations for different types of investments. NPV is calculated by comparing the variations between cash inflows and outflows, taking into consideration the time value of money. It factors in the initial cash spent and determines the present value of returns. NPV incorporates key metrics such as time, present value, future value, and discount rate to determine the positivity or negativity of investment returns.