Investing term
What is Present value (PV)?
What a future amount of money is worth today, after applying the discount rate.
Present value (PV) is what a future sum of money is worth today, once you discount it for the time and risk involved in waiting. A dollar received later is worth less than a dollar now, because today's dollar can be invested and grow — so future money must be 'discounted' back to its equivalent value today.
PV is the fundamental building block of all cash-flow valuation. To find what a business or an asset is worth, you estimate its future cash flows and convert each to its present value using a discount rate, then add them up. The further away a cash flow is, and the higher the discount rate, the smaller its present value — which is why distant profits are worth far less today than near-term ones, and why rising rates cut the present value of all future cash flows. Understanding present value is what makes concepts like DCF, intrinsic value, and the effect of interest rates click into place.
Present value is what a future amount is worth today, discounted for time and risk. $100 due in ten years might be worth only $42 now — the building block beneath all cash-flow valuation.
For example
At a 9% discount rate, $100 due in five years has a present value of about $65 today, and $100 due in ten years only about $42 — the further off, the less it's worth now.
Learn it by doing
That's Present value (PV) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 15, Valuation for Investors).
Try the free lesson →Why it matters to you
Present value matters because it's the concept underneath nearly all of valuation: the idea that money in the future is worth less than money today, by an amount set by time and risk. It explains why a DCF sums discounted cash flows, why distant growth is worth less than it seems, and why rising interest rates lower asset prices across the board. Grasping present value turns a pile of valuation jargon into a single, intuitive principle.
⚠ Valuing distant cash flows at face value
It's easy to be seduced by big future numbers — a company that will 'earn billions in ten years' — without discounting them to today. But cash far in the future is worth much less now, especially at higher discount rates. Treating distant, uncertain profits as if they were worth their full face value today overstates what a business is worth and is a common way growth stories get overvalued.