Net present value - A calculation which is based on the idea that £1 received in ten years" time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value.The NPV calculation establishes what the value of future earnings is in today"s money. To do the calculation you apply a discount % rate to the future earnings. The further out the earnings are (in years) the more reduced their present value is.NPV is at the heart of securities analysis. Analysts use predictions of a company"s future earnings and dividend payments, appropriately discounted back to current value, to establish a "fundamental" value for the shares. If the current share price is below that value, then the shares are, on the face of it, attractive, If lower, they are "overvalued". In practice the analysis is more sophisticated, but it is based on the concept of NPV.
Net present value : a calculation which is based on the idea that £1 received in ten years" time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value.the npv calculation establishes what the value of future earnings is in today"s money. to do the calculation you apply a discount % rate to the future earnings. the further out the earnings are (in years) the more reduced their present value is.npv is at the heart of securities analysis. analysts use predictions of a company"s future earnings and dividend payments, appropriately discounted back to current value, to establish a "fundamental" value for the shares. if the current share price is below that value, then the shares are, on the face of it, attractive, if lower, they are "overvalued". in practice the analysis is more sophisticated, but it is based on the concept of npv.
Net present value