If you are looking to purchase stock in a company, you will want to know what impact the present value of an investment can do to your portfolio. The present value calculator is a great tool that can help determine if a stock is worth the risk.
For everything you need to know to calculate present value accurately, look no further. We cover the what present value is, when it should be calculated, and more.
When you're thinking about money in the future, you always need to make a measured comparison.
A present value calculator can help to make this math easier by converting future lump sums into current values.
A present value calculator will consider all of the factors that will diminish the value of your money over time in a few simple steps.
When you hear the term "present value", you might think that it's a simple and intuitive concept.
It might seem as simple as how much this investment is worth. If you buy a stock for ten cents per share, it's worth ten cents per share.
However, it's more complicated than that.
It's the absolute basis for pricing of stocks and bonds. In financial modeling, banking, insurance, lottery payments, and even pension funds, it arises as an important consideration.
Its basic meaning is that spending a certain amount today should yield a certain value in the future. It's the time value of money.
If you have some understanding of how a dollar works, you know that a dollar in 1950 doesn't buy the same amount of milk as it does in 2019.
Present value is an imprecise science that can give you a sense of long and short-term growth, capital expenditures, and other factors.
These variables are hard to predict with precision, but given the data that's available, present value can be calculated to some degree.
The present value calculation can have a broad range of ramifications for your portfolio.
It can be used to discount the future value of investments to give you a real sense of where you could be losing value.
If you don't see growth that exceeds the loss of value, you could be making a bad choice of investment.
Some people expect to receive a lump sum of money in the future, whether an inheritance, a lottery payment, or an HSA at a certain age.
Understanding the value of something in today's dollars can help you form a realistic understanding of what your investment is actually worth.
When you want to plan an early retirement, you'll have to calculate your future income and expenses. It's likely that expenses will go up and the value of your dollars will go down, and present value can help you compensate for that.
Think about if you had loaned someone $1,000 and they wait 5 years to pay it back.
If inflation is 7%, they'll end up paying you back around $700 in a $1,000 shaped pile. Your money will have lost value over time and they'll have benefited from using it when it had more purchasing power.
So if you're calculating the discounted present value of $1,000 during a period of 5 years, you'd be calculating it at a little more than $700. The inverse is true as well. If you have $700 today, it's could have the same buying power as $1,000 in 5 years.
A present value calculator can help you arrive at these terms in a real sense, using real inflation numbers and the reality of how much money you have.
Understanding your future needs, the pressure of inflation, changes to your income, and the change to your investments can be a complicated affair.
You can reflect risks of your investments and cater the calculations to your exact needs when using a present value calculator.
Remember that these results aren't always accurate and depend on assumptions. You're going to making some speculations that current conditions will remain relatively steady.
Opportunity costs can change the results of your calculations, but you should be able to compensate for that or other perceived risks.
Knowing the present value of an investment in a vague sense can help you make more informed decisions about investing.
When you're informed, you can make better investment choices to grow a comfortable future for retirement, college funds, or a life of leisure.
This is the present value of cash inflows versus the present value of cash outflows.
Companies will use net present value for calculating their capital expenditures and any business planning they need to do.
If you're looking to run your personal finances like a business, you'll can use net present value to balance your investment profits and expenses.