The TVM Time Value of money formula is applied to which metric of a company?



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The TVM formula is applied to which metric of a company?

Revenue - Incorrect
Gross Margin
Profit - Incorrect
Free Cash flow - Correct
please explain the above text more elaborately

2 Answer(s)


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it applies to free cash flow to value a company and sometimes to evaluate a project future cash flow are discounted based on cash from operations to discount the same and calculate n.pv to decide wheather to accept the proposal to invest or reject

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TVM is used to value a project or a company.
The best way to value any project is using its cash flows - since thats what is remaining after all expenses etc.
Hence TVM is applied to the Cash Flow metric
For example if you had to determine what is your net worth - then just your salary/revenue is a bad indicator. You have to subtract your liabilities/expenses and the final amount is your net worth.
The same applies to companies and projects.

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