Ticker: N/A The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential. It is a fundamental principle in finance that recognizes the impact of time on the value of money. The TVM principle suggests that a dollar today is worth more than a dollar promised at some time in the future.
Present value means an amount of money today is worth more than that same amount in the future. Unspent money today could lose value by a future date due to inflation or missed investment opportunities. By considering the present value, individuals and businesses can make informed financial decisions, calculating the worth of future cash flows and determining the value of investments.
How do you define value? Can you measure it? What are your products and services actually worth to customers? Remarkably few suppliers in business markets have good answers to these critical questions. Understanding the time value of money allows businesses to assess the worth of their offerings, price them accordingly, and make decisions about investment in research and development, marketing, and expansion.