Financial Analysis Archive


Financial Analysis Archive

	Financial Analysis Archive

	Step 1: Calculate Demand

	Step 2: Determine the Payor Mix

	Step 3: Calculate Revenue

	Step 4: Calculate Expenses

	Step 5: Calculate Net Income

	Step 6: Calculate Net Present Value

	Calculate Future Value

	Calculate Present Value

	Calculate Net Present Value

	Using Excel for NPV

	Using NPV to Make a Decision

	Step 7: Calculate Payoff Point

	Step 8: Using Financial Information

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Using NPV to Make a Decision

So what does NPV really mean in terms of decision making? It means one of three things:

If NPV is negative, that means the project will cost more than it will ever earn in today’s money. It means you are actually going to lose money, so you shouldn’t invest in the project.

If NPV is zero then it’s a wash. You don’t make money and you don’t lose money. In this case, going forward with the project can’t be a financial decision. There needs to be some other compelling reason to invest.

If NPV is positive, then the project is a winner. Positive NPV means that you make money in the long run, and going forward with the project makes financial sense. If you are considering more than one project, then the biggest NPV wins, financially speaking. The larger the NPV figure, the more money the project is expected to make.