Present value is a time value of money (TVM) concept. It is a lump sum of money today or at the beginning of a TVM problem. It is the current discounted value of all future cash flows. Discounting is the process of bringing money to the present. It is the opposite of compounding which is growing money to the future. Financial calculators and Excel use PV function to calculate present value.
The present value formula includes the following variables: FV = future value, i = periodic interest rate, and n = number of periods.
Assume you will receive $1,331 at the end of three years. If you require a 10% return, what is the present value today? The present value is $1,000. See the following example.
Profit and Loss Statement
The profit and loss statement (P&L) is also called the income statement. The format of the income statement is revenues minus expenses.