Does the Net Present Value (NPV) calculation uses cash inflows or profits?

Net Present Value (NPV)
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Tafadzwa, Zimbabwe

Does the Net Present Value (NPV) calculation uses cash inflows or profits?

Does the NPV calculation uses cash inflows or profits? Should I use the revenue generated by the project or the profit?

  Alpin McGregor
freeelance, United Kingdom
 

NPV and Cashflows

NPV and IRR both use cashflows. Profit is not a cashflow. An approximation for cashflow would be profit plus depreciation. Remember this is only an approximation. For capital investment decisions by a firm, the firm will need to prepare cash forecasts anyway (or at least it should do) so the question of using profit or even having to adjust profit for non cash items such as depreciation should not arise.

 

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