What is Net Present Value?

Net Present Value (NPV) is the difference between present value of net inflows versus the present value of outflows (expenses).

The net present value is a good analyst tool for measuring the profitability of a company’s project or new undertaking, like expansion into a new market. It measures the anticipated cash inflows (revenues) from the undertaking versus the anticipated costs of the new project (also in present value terms).

A positive NPV indicates that a project should be profitable, and a negative NPV implies the opposite.