net present value

Definition

The difference between the present value of cash inflows and outflows over time, discounted because a dollar today is worth more than a dollar tomorrow—thank you, inflation and opportunity cost. If it's positive, invest; if negative, run away.

Example Usage

The project had a negative net present value at any reasonable discount rate, so management wisely killed it.

Origin

Developed in the 1930s-40s as capital budgeting theory evolved in academic finance

Fun Fact

NPV assumes you can actually predict future cash flows accurately, which is why so many projects fail despite positive NPVs on the initial proposal.

Source: Corporate finance and capital budgeting theory

Related Terms

Beginner

accounting

The ancient art of recording, classifying, and summarizing financial transactions, then presenting them in ways that either enlighten or confuse everyone involved. It's the language of business, spoken fluently by people who find tax codes exciting. Keeps companies legal, investors informed, and provides employment for millions who really, really like spreadsheets.

💰 Finance / Accounting

Intermediate

expense ratio

The annual fee expressed as a percentage that mutual funds and ETFs charge for the privilege of managing your money. It seems small until you realize how much that 1% compounds against you over decades.

💰 Finance / Accounting

Beginner

capital

Money, equipment, or assets used to generate more wealth—essentially the financial fuel that makes the economic engine go vroom. In finance, it's the cash you invest; in economics, it's one of the holy trinity of production factors alongside labor and land. Venture capitalists have lots of it, and startups are perpetually hunting for it like caffeinated treasure hunters.

💰 Finance / Accounting

Beginner

retained earnings

The cumulative profits a company has kept rather than distributing to shareholders as dividends—basically the corporate equivalent of money in the mattress. It's how companies fund growth without begging investors for more cash.

💰 Finance / Accounting

Beginner

Portfolio

A collection of investments that you constantly check at 2 AM like a new parent checking on a sleeping baby. Financial advisors will tell you not to look at it every day, which is excellent advice that nobody in the history of investing has ever followed.

💰 Finance / Accounting

Intermediate

basis point

One hundredth of one percent (0.01%), because apparently regular percentages weren't confusing enough for finance professionals. When your mortgage rate increases by 25 basis points, congratulations—you're paying 0.25% more.

💰 Finance / Accounting

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