> For the complete documentation index, see [llms.txt](https://help.modelreef.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://help.modelreef.io/help/financial-outputs-and-valuation/npv-calculation.md).

# NPV Calculation

This article explains how **net present value (NPV)** is calculated in Model Reef.

You will learn:

* How NPV is computed from FCFF or FCFE.
* How discount rates and terminal value are applied.
* How NPV differs for enterprise and equity valuations.

NPV converts a stream of future cashflows into a single value today.

{% stepper %}
{% step %}

### NPV from cashflow series

For a given scenario, the valuation engine constructs a series of cashflows:

* Either FCFF or FCFE for each forecast period.
* Plus a terminal value allocated to the final period.

It then applies discount factors derived from:

* WACC for FCFF based valuations.
* Equity discount rate for FCFE based valuations.
* The model's timing structure (dates or periods).

The general NPV formula is:

```
NPV
= Sum over all periods of (Cashflow in period ÷ (1 + discount rate) ^ t)
```

Where t is the number of periods or fractional years from the valuation date.
{% endstep %}

{% step %}

### Enterprise NPV versus equity NPV

Model Reef distinguishes between:

* **Enterprise NPV**
  * Based on FCFF.
  * Represents value to all capital providers.
  * To derive equity value you typically adjust for net debt.
* **Equity NPV**
  * Based on FCFE.
  * Represents value directly attributable to equity holders.
  * Net debt is already accounted for in the FCFE cashflows.

You can review both types for cross checking and communication purposes.
{% endstep %}

{% step %}

### Periodicity and exact discounting

The engine handles different period structures by:

* Converting annual discount rates into effective per period rates where needed.
* Using actual dates or period indices to calculate t.
* Supporting irregular periods if the model structure implies them.

This keeps NPV calculations aligned with how your model handles time.
{% endstep %}

{% step %}

### Sensitivity of NPV

NPV is sensitive to:

* Changes in discount rates.
* Changes in growth, margins and capex assumptions that affect FCFF or FCFE.
* Terminal value choices, especially the multiple or growth rate.

Model Reef makes it easy to explore these sensitivities by:

* Creating alternate scenarios with different assumptions.
* Comparing NPVs across scenarios on dashboards and reports.
  {% endstep %}
  {% endstepper %}

## Related articles

* [WIP & Cost-to-Complete Forecasting](/use-cases/construction-and-contracting/wip-and-cost-to-complete-forecasting.md)
* [Build an Acquisition Case vs Base Case](/how-tos/investment-and-transactions/build-an-acquisition-case-vs-base-case.md)
* [Model Templates](/help/workspace-and-organisation/model-templates.md)
* [Export Options](/syntax/chart-and-table-syntax/export-options.md)