We are independent & ad-supported. We may earn a commission for purchases made through our links.
WiseGEEK

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

What Is the Future Value of Cash Flows?

By Osmand Vitez
Updated May 17, 2024
Our promise to you
WiseGEEK is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGEEK, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

The future value of cash flows represents the total value a certain dollar amount will be in the future. For example, investors may desire information on how much money they can make when placing a certain amount of money into a specific investment. The main pieces of information needed to compute the future value of cash flows include the present value of cash flows, interest rate for the investment, and the number of years the investment will last. Other items that may be necessary are varying cash flows over a given time period and if the investment will have compounding interest. A standard formula or financial calculator can aid in computing the future value.

A standard formula for the computation of future value of cash flows is present value times one plus the interest rate divided by the compounding interest periods. The denominator in this formula is raised to the power of compounding periods times the years of the investment. For example, the mathematical formula looks like this: PV(1 + i/m)mn, where i is the interest rate, m is the number of compounding periods and n is the number of years for the investment. This formula usually applies to all computations relating to the future value of cash flows. Some alterations may be necessary in order to adjust this formula to a different investment or use of cash flow measurements.

The future value of cash flows is a good formula for deciding which investment to place money in. For example, if a company or investor has several different options, using the standard formula above can provide data on how much passive income each investment will incur. Companies often use this formula for investments with varying cash flows over several different periods. Adjusting the formula to handle these differing payments can give the company an idea of which investment will pay out more passive income over a given time period. In most cases, a company will select the investment that provides the most financial return.

As with many mathematical business formulas, the formula for the future value of cash flows is not entirely accurate. The formula only computes an answer based on given information. Inaccurate data plugged into the formula leads to flawed results. Additionally, external factors can alter the outcome of a financial investment greatly. Unfortunately, there is no formula that can detect the problems that may occur in a market or investment.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
See our Editorial Process Share Feedback

Related Articles

Discussion Comments

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGEEK, in your inbox

Our latest articles, guides, and more, delivered daily.