Net present value, or NPV is the great equalizer of financial analysis.

NPV allows us to compare any two investments and determine which is the better investment.

NPV tells us how many dollars, today, we would be willing to spend to receive money in the future. NPV lets us compare investments that pay back money in very different ways – we can decide if we would rather have $10,000 in one year, or $500 per month for 20 months. Without NPV, the two investments appear to be the same (they both return $10,000), but one of them is better than the other.