Net present value
NPV / NPV
Net present value is the sum of expected future cash flows discounted to today's value at a chosen rate, minus the initial investment.
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Simply put
What it means in ordinary work
It compares money received or paid at different times on a common basis. A positive NPV suggests the investment returns more than the discount rate used.
Why it matters
NPV helps compare projects with different timing and cash profiles. It is sensitive to assumptions, especially the discount rate and forecast cash flows.
A hypothetical in practice
A hypothetical automation project costs 250,000 and is expected to save 80,000 a year for four years. The team calculates NPV at the approved discount rate and tests lower savings assumptions.
Common pitfalls
A precise NPV can hide uncertain inputs. Present scenarios and the assumptions that matter most.
A positive NPV is not the only decision criterion. Consider risk, capacity, strategy and non-financial effects.
Scope and limits
Discounted cash-flow method. The discount rate, timing convention, tax treatment and cash-flow definitions must be agreed in advance. This is an example, not a universal finance policy.
Regional lens
How this lands where you work
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As-of date for date-sensitive regional content: 5 November 2026. Read the review policy.