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


 
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Does the Net Present Value (NPV) calculation uses cash inflows or profits?
Tafadzwa, Zimbabwe
Does the NPV calculation uses cash inflows or profits? Should I use the revenue generated by the project or the profit?
 

 
NPV and Cashflows
Alpin McGregor, freeelance, United Kingdom
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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