Understanding Present Value (PV) and Future Value (FV) in Cashflow Planning

In cashflow planning, accurately entering and understanding financial data is crucial for making informed decisions. Our platform defaults all input values to Future Value (FV) terms to provide a clear picture of the exact amounts entered in the cash flow plan. However, if you prefer to enter amounts in Present Value (PV) terms, you can select the PV option, which will automatically adjust the input amount using the applicable growth or inflation rate to an appropriate real value in the future.

Definitions

Future Value (FV):

- Definition: Future Value refers to the value of a current asset or amount of money at a specified future date, based on an assumed rate of growth or return.

- Purpose: When you enter an amount in FV terms, you are specifying what that amount will be worth at a future point in time.

Present Value (PV):

- Definition: Present Value is the current worth of a future sum of money or stream of cash flows, discounted at a specified rate to reflect the time value of money.

- Purpose: When you enter an amount in PV terms, you are specifying its value in today's terms, adjusted to reflect its future worth using an applicable growth or inflation rate.

Key Points for Users

1. Default Setting:

- By default, our platform assumes all input values are in FV terms. This ensures that the amounts you enter are reflected as you expect in your cash flow plan.

2. Option to Enter PV:

- If you prefer to enter amounts in PV terms, simply select the PV option. The system will convert the input to a real future value using the relevant growth or inflation rate.

3. Relevance to Today's Date:

- If the input amount is for today’s date, it does not matter whether you choose PV or FV terms. The amount remains the same as no time value adjustment is needed.

4. Displaying Data in Real Terms:

- Our cashflow planning always presents data in real terms, accounting for inflation unless you intentionally set the growth or inflation rates to 0%. This approach ensures that the values reflect actual purchasing power over time.

By understanding and correctly using PV and FV terms in your cash flow planning, you can make more accurate and meaningful financial decisions. Always be aware of the option you are using to ensure clarity and precision in your financial projections.