Net present valueNet present value (NPV), also known as net present worth (NPW) is a method for assessing whether future amounts of money are worth more or less than the cost of an investment made today. It is widely used in finance, economics, and project evaluation to judge whether a planned activity is expected to create value. NPV works by converting future cash flows into their “present value,” recognising that money available now is more valuable than the same amount received later.Accounting rate of returnThe accounting rate of return, also known as average rate of return, or ARR, is a financial ratio used in capital budgeting. The ratio does not take into account the concept of time value of money. ARR calculates the return, generated to net income of the proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it means that the project is expected to earn seven cents out of each dollar invested (yearly).
Accounting liquidityIn accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay their debts as and when they fall due. It is usually expressed as a ratio or a percentage of current liabilities. Liquidity is the ability to pay short-term obligations. Calculating liquidityFor a corporation with a published balance sheet there are various ratios used to calculate a measure of liquidity.Internal rate of returnInternal rate of return (IRR) is a method of calculating an investment's rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk. The method may be applied either ex-post or ex-ante. Applied ex-ante, the IRR is an estimate of a future annual rate of return. Applied ex-post, it measures the actual achieved investment return of a historical investment.
Profit (accounting)Profit, in accounting, is an income distributed to the owner in a profitablemarket production process (business). Profit is a measure of profitability which is the owner's major interest in the income-formation process of market production. There are several profit measures in common use. Income formation in market production is always a balance between income generation and income distribution.
Value (economics)Benefit provided by a good or service in an economy Part of a series onEconomics OutlineIndexGlossaryEconomists Principles of Economics Tools and methodologyEconomic theory Mathematical modeling Game theory Rational choice Cognitive science (Behavioral) Economic equilibrium Empirical methods Experimental Econometrics Time series Spatial Causal inference Quasi-experiments Prescriptive and policy Welfare analysis Social choice theory Rational choice theory Cost–benefit analysis Branches and subfields Applied Econometrics Econophysics International Heterodox Micro Macro Mainstream Mathematical Mech.
DiscountingIn finance, discounting is a mechanism in which a debtor obtains the right to delay payments to a , for a defined period of time, in exchange for a charge or fee. Essentially, the party that owes money in the present purchases the right to delay the payment until some future date. This transaction is based on the fact that most people prefer current interest to delayed interest because of mortality effects, impatience effects, and salience effects.Interest rateAn interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed. Interest rate periods are ordinarily a year and are often annualized when not. Alongside interest rates, three other variables determine total interest: principal sum, compounding frequency, and length of time. Interest rates reflect a borrower's willingness to pay for money now over money in the future.
Time value of moneyThe time value of money refers to the idea that there is generally a greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later developed concept of time preference. The time value of money refers to the observation that it is better to receive money sooner than later. Money you have today can be invested to earn a positive rate of return, producing more money tomorrow.
CashCash is money in the tangible form of currency, such as banknotes and coins. In book-keeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately (as in the case of money market accounts). Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash flow, or as a way to avoid a downturn on financial markets.
AccrualIn accounting and finance, an accrual is an asset or liability that represents revenue or expenses that are receivable or payable but which have not yet been paid. In accrual accounting, the term accrued revenue refers to income that is recognized at the time a company delivers a service or good, even though the company has not yet been paid.
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