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NPV in Excel

May 14, 2018

Summary

NPV is a measurement of profitability by subtracting the PV (present value) of cash outflows from PV of cash inflows over time.

This post will teach you how to calculate NPV in Microsoft Excel, and how NPV is calculated in Invest for Excel – the financial modelling software by DataPartner.

The NPV (net present value) of an investment can be calculated in Excel by using the NPV formula to calculate the series of future cash flows by a discount factor, or rate of return.

Notes

  • Values must be equal lengths of time - i.e Annual basis.
  • Values must be in sequential order  - i.e Year 1, Year 2, Year 3, etc.
  • Excel’s NPV formula is, despite being called net, not the net profit of the investment. It is important to subtract in the initial investment when calculating net profitability. Expressed as a formula, this is: “ =NPV(rate, value1, [value2], ...) + C1 “ where C1 is the initial investment(s) as a negative value.

The software tool Invest for Excel automatically creates a financial model that calculates project profitability based on NPV, EBITDA, EBIT, EBT, RONA, EVA and more. Learn more about Invest for Excel

Purpose

The purpose of NPV formula is to determine the discounted cash flows of a project. When correctly applied, it can show whether a project is profitable by taking into consideration the time value of money.

Syntax for NPV formula

=NPV (rate, value1, [value2], ...)

NPV formula parameters

  • rate - Discount factor or required rate of return over one period
  • value1 - First cash flow value
  • value2 – (optional) Second cash flow value

Step by step

1. Input a required rate of return, or discount rate, in a cell
2. Create sequential cells of cash flows
3. Input formula =NPV(“select rate cell”,”select cash flow cells”)
4. Press Enter
5. Read the notes above to complete your calculation.

NPV in Invest for Excel

NPV is automatically calculated in Invest for Excel, our specialist software tool, that creates flexible financial models. Invest for Excel calculates investments, depreciations, incomes, costs, working capital, debt/equity financing, and overall profitability of the project. Invest for Excel provides a standard for calculating NPV, IRR, MIRR and more profitability factors.

The software is used by multinational corporations around the world as a standard for capital budgeting and cash flow modelling. 

Download a free 30-day trial of Invest for Excel today.

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