Cash Flow Calculator
What is Cash Flow Analysis?
A cash flow analysis helps you evaluate the profitability and viability of an investment or business project. By projecting how much money will flow in and out of the business over time, you can determine if an investment is worth the initial cost. Our free discounted cash flow calculator makes this complex financial modeling simple.
How to Calculate Net Present Value (NPV)
Net Present Value (NPV) is the core metric of cash flow analysis. Because money today is worth more than money tomorrow (due to inflation and opportunity cost), future cash flows must be "discounted" back to their present value.
NPV = ∑ [Cash Flow / (1 + Discount Rate)^Time] - Initial Investment
If the NPV is positive, the investment is generally considered profitable. If it is negative, the investment will likely lose money compared to your required rate of return.
Frequently Asked Questions
The discount rate represents your required rate of return, or the "hurdle rate." For businesses, this is often the Weighted Average Cost of Capital (WACC). For individual investors, it might be the return you could get from a safe alternative investment, like an index fund (e.g., 7% to 10%).
NPV (Net Present Value) calculates the absolute dollar value of an investment in today's money, accounting for the time value of money. ROI (Return on Investment) is a simple percentage that shows the total return relative to the initial cost, but it completely ignores when the cash flows occur. A project might have a high ROI but a negative NPV if the returns take decades to materialize.
First, enter your Initial Investment (the upfront cost). Second, enter your Discount Rate (your required percentage return). Finally, enter your expected cash inflows for each period (usually years) separated by commas. For example, if you expect to make $2,000 in year 1, $3,000 in year 2, and $4,000 in year 3, you would enter: 2000, 3000, 4000.
A negative NPV means that the present value of the future cash flows is less than your initial investment, based on your chosen discount rate. It does not necessarily mean the project loses money overall, but it means the project will earn less than your required discount rate. Usually, projects with a negative NPV are rejected.