When you need to make financial calculations, a spreadsheet program like Google Sheets can greatly speed up your productivity.
They have many built-in functions for common financial calculations. One such function is the NPV function which is used to calculate the net present value of an investment.
In this tutorial, I will show you how to use the NPV function in Google Sheets.
Table of Contents
Net Present Value
Net present value is used in investment planning and capital budgeting to examine the profitability of an investment.
It is the difference between the current value of cash inflows and the current value of cash outflows over a period of time.
If the Net Present Value (NPV) is positive, it means that the future cash flows of the investment should be positive, which is a good thing when looking at investments or other projects.
To calculate the NPV you will need the discount rate and an estimate of future cash flows.
Using the NPV Function
Calculating NPV is fairly easy with the built-in NPV function in Google Sheets.
The NPV function will calculate the net present value of an investment based on periodic cash flows and the given discount rate.
Here is the syntax of the NPV function:
=NPV(discount, cashflow1, [cashflow2, …])
- discount – this is the discount rate of the investment over one period
- cashflow1 – the first future cashflow
- cashflow2- this argument is optional. You can continue to place additional cashflows in the formula if desired
The cash flows used in this function can be either negative or positive. They will be considered in the order that they are entered into the formula.
Here is an example of how the NPV function would be used in a spreadsheet:
You can see in the example above the first cash flow is negative (-300) which represents the upfront cost of the investment. The discount rate is 7% and so the NPV of this series of cash flows is $689.39
The financial functions in Google Sheets make making calculations like NPV incredibly easy. After learning how to use this function you can make these calculations in a matter of seconds if you have the discount rate and cashflows.
We will cover more financial functions in the future, but that is it for this post!
More Google Sheets Tutorials:
How to Use the PMT Function
How to Create a Loan Amortization Schedule
How to Calculate CAGR