# Present Value vs Future Value

Published on :

21 Aug, 2024

Blog Author :

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Edited by :

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Reviewed by :

Dheeraj Vaidya

## Present Value vs Future Value Differences

The present value is that amount without which we cannot obtain the future value. The future value, on the other hand, is the amount which an individual will get after a certain time period from the cash on hand.

In this article, we look at the differences between Present Value vs Future Value.

### What is Present Value?

Present value is a basic concept in the world of finance. Present value is the value, which is today’s value. Suppose you invest today Rs 100 at 10% interest for 1 year. Then after one year, the amount becomes Rs110. This Rs 100, which you are investing today, is called the present value of Rs 110. Future value is that value which will be the value in the future. So here Rs 110 is the future value of Rs 100 at 10%. Present value helps in making decisions on investment, which is based on the current value. So the present value is the current value of the cash flows, which will happen in the future and these cash flows happen at a discounted rate.

### What is Future Value?

Future value, on the other hand, can be defined as the worth of that asset or the cash but at a particular date in the future, and that amount will be equal in terms of value to a particular sum in the present. Future value formula plays a very important role in the world of finance. It is the basis of most important valuation techniques to value a company. With the help of discounting a cash flow that is projected to be generated at a future period, the DCF technique is used in order to value a company or any order asset class that generates a certain amount of cash and is expected to continue generating cash for a particular future period.

### Present Value vs Future Value – Infographics

Here we provide you with the top 7 difference between Present Value vs Future Value

### Present Value vs Future Value – Key Differences

The key differences between Present Value vs Future Value are as follows –

• Present value is crucial because it is a more reliable value, and an analyst can be almost certain about that value. On the other hand, since the future value is a projected figure, no one can fully rely on that figure as in the future, something can happen, which can affect the projections.
• Present value is defined as the current worth of the future cash flow, whereas Future value is the value of the future cash flow after a certain time period in the future.
• While calculating present value, inflation is taken into account, but while calculating future value, inflation is not considered.
• While calculating present value, discount rate and interest both are considered, but while calculating future value, only interest is considered.
• Present value helps the investors in understanding and deciding whether an investment should be made or rejected. Since future value tells about the future gains from an investment, it does not have a significant role in decision making regarding an investment.
• The present value technique uses discounting to find out the investment’s value on today’s date. The future value technique uses compounding to find out the investment’s future value.