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


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)


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


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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