Net Present Value (NPV) is a capital budgeting and valuation technique that calculates the difference between the present value of expected future cash inflows and the present value of cash outflows associated with an investment — discounted at an appropriate required rate of return (discount rate). A positive NPV indicates that the investment is expected to generate returns in excess of the required rate, creating value for shareholders. A negative NPV signals value destruction. NPV is calculated as: NPV = Σ [Cash Flow_t ÷ (1+r)^t] – Initial Investment, where r is the discount rate and t is the time period. In equity valuation, NPV forms the basis of the Discounted Cash Flow (DCF) model — one of the most widely used intrinsic valuation methodologies for Indian stocks, where free cash flows are projected and discounted at the Weighted Average Cost of Capital (WACC). NPV is also used by Indian companies to evaluate capital expenditure projects, acquisitions, and new business investments — accepting only projects with positive NPV.
For android only
