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

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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?
 
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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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More on Net Present Value (NPV):
Summary
Discussion Topics
topic Re-evaluating an investment decision
topic Operating Cash Flows
👀Does the Net Present Value (NPV) calculation uses cash inflows or profits?
topic Choosing between Investments Using a Comparison of NPVs
topic More Complex NPV Comparison: Interrelated Projects
topic NPV of $1 Million for a Project Means What
topic WHEN to Invest? Investing at the Right Moment...
topic Calculating NPV with Missing Data
topic Example of Net Present Calculation
topic NPV of Partial Payments
topic How do you Calculate NPV when Initial Investments are Unknown?
topic Missed Interest in NPV
topic NPV assumes Certainty of Cash Flows
topic Calculating Cost per Unit if Zero NPV without any Operating Costs Information
topic Calculating NPV for a Project
topic NPV Cost Avoidance and Savings
topic NPV for Leased Equipment versus Purchased Equipment
topic NPV with a Missing Cash Flow Figure
🔥 NPV with Only Costs & IRR
Special Interest Group

SIG Leader

Do you know a lot about Net Present Value (NPV)? Become our SIG Leader

Knowledge Center

Net Present Value (NPV)
Knowledge Center



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