Resources ❯ Accounting Terms

Net Present Value (NPV)

[net PREZ-uhnt VAL-yoo]

What is the definition of Net Present Value (NPV)?

Net Present Value (NPV) is a financial analysis method used to evaluate investments by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time, using a specified discount rate.

Using Net Present Value (NPV) in an Example

A company is considering investing in new equipment that costs $100,000 and is expected to generate $30,000 annually for 5 years. If the company's required rate of return is 10%, the NPV calculation would help determine if the investment is worthwhile by discounting the future cash flows back to their present value and comparing this total to the initial investment.

Using Net Present Value (NPV) in a sentence

During the meeting, the CFO explained that the project's net present value was positive, indicating that the expected earnings outweighed the costs and thus, it was a financially viable option.

Related Terms

NASBA

The National Association of State Boards of Accountancy (NASBA) serves as a platform for the 54 State Boards of Accountancy in the United States, which administer the Uniform CPA Examination, license Certified Public Accountants, and regulate the practice of public accountancy.

NASDAQ

The National Association of Securities Dealers Automated Quotations system, a global electronic marketplace for buying and selling securities, primarily stocks. It is known for its high concentration of technology stocks and is operated by the National Association of Securities Dealers (NASD).

NAV

Net Asset Value (NAV) refers to the value per share of a mutual fund or an ETF, calculated by dividing the total value of all the assets in the portfolio, minus liabilities, by the number of shares outstanding.

NPV

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or project, calculated by summing the present values of all expected future cash inflows and outflows using a specific discount rate, typically the required rate of return.

NSF Check

A check that cannot be processed because the account on which it was drawn does not have sufficient funds.

NYSE

The New York Stock Exchange (NYSE), also known as the Big Board, is the oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City.

National Association of Securities Dealers Automated Quotations (NASDAQ)

A computerized system owned and operated by the National Association of Securities Dealers that provides brokers and dealers with price quotations for securities traded over-the-counter, as well as for many securities listed on the New York Stock Exchange (NYSE).

National Association of State Boards of Accountancy (NASBA)

Serves as a forum for the 54 State Boards of Accountancy, which administer the uniform CPA examination, license Certified Public Accountants, and regulate the practice of public accountancy in the United States.

Nationalization

The process by which a government takes control over a privately owned company, asset, or industry, often with compensation to the original owners.

Negative Assurance

A report issued by an accountant, based on limited review procedures, which indicates that nothing has come to the accountant's attention to suggest that the financial information is not fairly presented.

Negligence

Negligence is the failure to exercise the care that a reasonably prudent person would exercise in like circumstances. It involves the doing of something that a person of ordinary prudence would not do, or failing to do something that a person of ordinary prudence would do under similar circumstances. This legal concept is based on the expectation of exercising reasonable care and attention to prevent harm or injury.

Negotiable

Refers to a security or instrument whose ownership can be transferred from one party to another, typically by endorsement or delivery, and can be used to settle financial obligations or exchanged for money.

Net

The amount remaining after all deductions are made from the gross total, which can include the profit or loss from a sale after subtracting the costs associated with the transaction.

Net Asset Value (NAV)

Net Asset Value (NAV) is the market value per share of a mutual fund or an exchange-traded fund (ETF). It is calculated by dividing the total value of all the assets in the portfolio, minus any liabilities, by the number of shares outstanding.

Net Assets

Net assets represent the excess of total assets over total liabilities, reflecting the equity value held by the owners in the company.

Net Current Assets

Net Current Assets, also known as working capital, represent the difference between a company's current assets and its current liabilities. This figure indicates the short-term financial health of a company and its ability to cover its short-term obligations with its short-term assets.

Net Income

Net income is the excess of total revenues and gains over total expenses and losses for an accounting period, indicating the profitability of a company.

Net Leas

A lease agreement where the lessee is responsible for both the rent and additional property expenses, which may include taxes, insurance, and maintenance costs associated with the property.

Net Loss

The amount by which total expenses exceed total revenues in a given period, indicating a financial loss in a company's operations.

Net Present Value Method

A capital investment evaluation method that discounts future cash flows to their present value, used to assess the profitability of a project or investment by determining the net value of all future cash flows.

Net Proceeds

The amount received from the sale or disposition of assets, issuance of securities, or from a loan, after deducting all related costs and expenses.

Net Sales

Net sales refer to the revenue generated from sales of goods or services after subtracting returns, allowances for damaged or missing goods, and any discounts offered.

Net Worth

Net worth is the total value of an individual's or entity's assets minus their liabilities, representing the owner's equity in the entity.

New York Stock Exchange (NYSE)

The New York Stock Exchange (NYSE), commonly known as the Big Board, is the oldest and largest stock exchange in the United States, located at 11 Wall Street in New York City. It is a platform where stocks of publicly held companies are bought and sold.

No-Par Stock

Stock authorized to be issued without a specified par value in the articles of incorporation. Instead, a stated value is assigned by the board of directors at the time of issue.

No-Par Value

Stock or bond that does not have a specific face value indicated on the certificate.

Non Routine Transactions

Transactions that occur infrequently and involve data that are not part of the standard, daily flow of transactions within a business.

Non-Callable

A type of preferred stock or bond that cannot be redeemed before its maturity date at the option of the issuer.

Non-Sufficient Funds (NSF) Check

A check that cannot be processed because the account on which it is drawn does not have enough funds to cover the amount of the check.

Non-for-Profit Organization/Tax-Exempt Organization

An incorporated organization that operates for educational, charitable, social, cultural, or similar purposes, and does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. These organizations are typically exempt from paying income tax.

Nonresident Alien

A nonresident alien is an individual who is not a U.S. citizen or a resident alien of the United States. The income of nonresident aliens is subject to U.S. taxation if it is effectively connected with a U.S. trade or business.

Not-for-Profit

A type of organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help achieve its goals, which typically include various charitable, humanitarian, or educational purposes.

Note

A written promise to pay a specified amount to a certain entity either on demand or on a specified date.

Notes Payable

Notes payable are liabilities in the form of written promissory notes that a company is obligated to pay within a specified period, typically less than one year.

Notes Receivable

Notes receivable are written promissory notes that represent money owed to an entity, typically due within one year, and are recognized as assets on the balance sheet.

Notional

A value assigned to assets or liabilities that is not based on cost or market value, often used in financial contracts to specify the quantities upon which payments are based.

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