What Is Present Value (PV)?

By Jeremy Bowman – Updated Jan 1, 2025 at 11:07 AM

Key Points

Present value calculates today's worth of future cash flows using a discount rate.
Use present value to choose between investments by comparing future cash inflows.
Learning to calculate present value aids in identifying undervalued investment opportunities.

Present value is a way of measuring the current value of future cash flows. It’s a financial concept that has a broad range of applications, including real estate, investing, or business management, and it is a valuable tool for making investment and capital allocation decisions.

Present value is based on two other bedrock financial concepts: cash flow and the discount rate. Calculating present value requires estimating cash flow and the discount rate.

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A hand is drawing a graph on a blackboard of an upward trending arrow over a series of progressively bigger dollar signs. — Image source: Getty Images

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Net Present Value

A financial metric that assesses project profitability by comparing present value of inflows to outflows.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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