Net present value (NPV) is the value of a stream of cashflows are discounting the value of the cashflows for time and risk. Imagine the typical project scenario in which outlays are made over a period of time to get the project going and then at some point if the project is successful cashflow turns from negative outlays to positive inflows. Also observe that a cashflows are worth less further away they are in time and more risky they are. If we adjust (discount) all the cashflows for time and risk and then sum them up the total is net present value. The 'net' part recognizes that some cashflows are positive and some are negative.

Managers and entrepeneurs create value by identifying projects that have positive net present value. The net present value of a project is essentially the excess of value of output over the cost of inputs where ALL costs of inputs are recognized, including the time and risk cost of capital. The net present value of a project is the value created by the project.