Net Present Value (NPV)
Accounting glossary · Understand, connect, apply
Net present value is the sum of a project’s cash inflows and outflows after discounting them to a common date at a specified required return. It measures modelled value added in currency terms.
Example
Pay 1,000 now and receive 1,210 in two years. At 10% annually, the receipt is worth 1,000 today, giving NPV of zero before any other cash flows.
Formula and assumptions
NPV = sum of each net cash flow ÷ (1 + discount rate) raised to its period number
Remember the difference
Use relevant cash flows, consistent timing and a risk-appropriate discount rate. Positive NPV is conditional on the forecasts; it does not guarantee that the project will deliver the estimated value.
Browse the accounting glossary → · Follow a learning path
Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
← Return to the accounting glossary