# How to Calculate Net Present Value (NPV)

A net present value calculation, in simple words, is nothing but a figure that tells if an investment is profitable or not, in 'return on investment' terms. Here we will tell you how to calculate net present value (NPV) and interpret it.

WealthHow Staff

Last Updated: Jun 21, 2018

Net Present Value

It is nothing but the times series of cash flows emanating during the entire investment period, expressed in present value figures. The value takes into account both positive and negative monetary flows, i.e., it takes into account both the investments made and the incomes generated.

Calculating Net Present Value

The Formula

**NPV = Initial Outlay of Cash - ∑ [ (Net Cash Flow Per Period) / (1 + i)**

^{t}]where,

t = time period of cash flow

i = discount rate (as per market risk standards)

☛ The first step is to find out the initial outlay required to be invested by you into the concerned project. All calculations will be relative to the investment required and so it is extremely necessary that you come up with an accurate figure, inclusive of all relevant costs.