What is NPV accounting?

NPV accounting, or Net Present Value accounting, is a financial evaluation technique used to determine the profitability of an investment or project by considering the time value of money. It calculates the present value of future cash flows that an investment is expected to generate and compares it with the initial cost of the investment. The concept assumes that money received in the future is worth less than the same amount received today due to factors such as inflation and the opportunity cost of investing that money elsewhere. By discounting future cash flows at a predetermined rate, NPV accounting helps in determining the viability of an investment, as a positive NPV indicates that the project is expected to generate more value than its initial cost, while a negative NPV implies a loss-making venture.

This mind map was published on 28 November 2023 and has been viewed 167 times.