Future Value

Future Value

See Also:
Valuation Methods
Net Present Value Method
Adjusted Present Value (APV) Method
Present Value (PV)
Opportunity Cost

Future Value Definition

Future value (FV) is the value of a sum of money at a future point in time for a given interest rate. The idea is to adjust the present value of a sum of money for the time value of money over the specified time period.
If the present value is $1.00, and the interest rate is 10%, then the FV of that dollar one year from now would be $1.10. If someone offered you a dollar now or a dollar one year from now, you’d prefer the dollar now. Because by taking the dollar now and investing it, it will be worth more than one dollar a year from now. By applying that same concept to larger quantities of money, you can see that money now is more valuable than the same amount of money later and that it is necessary to consider the time value of money when making financial decisions.
Future value can be calculated with simple interest or compound interest. Practically speaking, it is more useful to calculate future value using compound interest. Simple interest accounts for interest accumulation over time without compounding. It is simply the principal amount adjusted for the annual interest rate. Compound interest accounts for the interest earned on the value of previous interest earned.

Future Value Formula for Simple Interest

FV = Present Value x (1 + (Interest Rate x Time Periods))
One dollar at 10% for one year: $1.10 = $1.00 x (1 + (.10 x 1))
One dollar at 10% for five years: $1.50 = $1.00 x (1 + (.10 x 5))

Future Value Formula for Compound Interest

FV = Present Value x (1 + Interest Rate) Time Periods
One dollar at 10% for one year: $1.10 = $1.00 x (1 + .10)1
One dollar at 10% for five years: $1.61 = $1.00 x (1 + .10)5
Don’t leave any value on the table! Download the Top 10 Destroyers of Value whitepaper.
Future Value Definition, Future Value Formula for Simple Interest, Future Value

[box]Strategic CFO Lab Member Extra

Access your Exit Strategy Execution Plan in SCFO Lab. This tool enables you to maximize potential value before you exit.

Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Future Value Definition, Future Value Formula for Simple Interest, Future Value

ARTICLES YOU MIGHT LIKE

Does your Accounting Department Produce Net Income?

Coaching the Entrepreneur: Learn how to know what you don’t know. How much should I spend on accounting for my company?     I have been in the accounting profession for 32 years, and for the last 6 years, I’ve owned my own consulting firm to assist companies with accounting challenges. There is one common theme that I

Read More »

Is Mexico the New China?

In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

August 7-10th, 2023

SHARE THIS ARTICLE
WIKI CFO® - Browse hundreds of articles
Skip to content