Net Present Value (NPV)
Definition
The value today of a project's expected future cash flows, discounted at a required rate of return, less the initial investment. A positive NPV means the project is expected to add value.
Related Terms in Financial Analysis
Internal Rate of Return (IRR)
The discount rate at which a project's net present value is zero — effectively its expected percentage return. A project is generally attractive when its IRR exceeds the required rate of return.
Payback Period
The time it takes for a project's cash inflows to recover the initial investment. It is simple and widely used but ignores cash flows after payback and the time value of money.
Cost-Volume-Profit (CVP) Analysis
A technique examining how changes in sales volume, costs and prices affect profit. It underpins break-even analysis and decisions on pricing, product mix and target profit.
Cash Burn Rate
The rate at which a business, often a startup, spends its cash reserves before reaching profitability. Gross burn is total cash spent; net burn is spending less any cash coming in.
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