NPV guide
How to calculate NPV
Net present value is calculated by discounting each future cash flow back to today and then adding the discounted values together. The initial investment is usually entered as a negative cash flow at year 0.
Open the NPV calculatorStep-by-step NPV calculation
- List each annual cash flow, including the initial investment.
- Choose the discount rate that reflects the required return or cost of capital.
- Discount each future cash flow using
Cash flow / (1 + r)t. - Add all discounted values together to calculate NPV.
- Compare the result with zero or with alternative investment scenarios.
Interpreting the result
A positive NPV means the modelled cash flows are worth more than the initial investment at the selected discount rate. A negative NPV means the investment does not reach the selected required return based on the inputs.