In this video, I break down net present value (NPV), one of the core tools investors and analysts use to evaluate investments and make capital budgeting decisions. You’ll learn exactly what NPV means, why we discount future cash flows back to today’s dollars, and how the formula works step by step. I walk through each component of the NPV formula, explain what the discount rate represents, and show you how to interpret your result. I also run through a complete coffee shop example with real numbers so you can see the entire calculation from start to finish. Plus, I cover the key limitations every investor should understand, including why NPV is only as reliable as your assumptions about future cash flows and discount rates. Whether you’re evaluating a business investment, comparing projects, or studying for a finance exam, this video gives you everything you need to calculate and interpret NPV with confidence.
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Chapters
0:00 – Introduction to NPV
0:25 – What is NPV?
0:51 – The NPV Formula
1:51 – How to Interpret NPV
2:18 – Coffee Shop Example
3:52 – Key Limitations
4:22 – Key Takeaways
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*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.
