Financial Analyst how-to
How to Calculate NPV for a Project
NPV shows whether a project creates value.
Quick answer
NPV shows whether a project creates value. In short: estimate; estimate; choose, then complete the remaining steps below.
Step by step
Estimate upfront costs.
Estimate future cash flows by year.
Choose a discount rate.
Discount each year’s cash flow to today.
Add discounted cash flows and subtract the investment.
Accept projects with positive NPV, considering risks.
Safety reminders for financial analysts
- Protect confidential financial data
- Use version control for models
- Check formulas to prevent costly errors
- Manage workload and screen time
Key terms
Financial model · Forecast · Variance analysis · Income statement · Balance sheet · Cash flow statement: see the full financial analyst glossary.