liveBook · Manning

Time value of money

As explained in Investing for Programmers

The time value of money is the principle that money available today has greater economic value than the same nominal amount received later because it can earn a return and purchasing power can change.

The time value of money means that money available today is worth more than the same nominal amount received later. Invested funds can earn interest, while inflation can reduce purchasing power. section 2.1.1

$1 today versus $1 next year

At a 5% annual interest rate, $1 invested today becomes $1.05 in one year. An uninvested dollar may also buy less after inflation. section 2.1.1

The principle helps interpret financial performance across time: a company whose net income stays unchanged for ten years may generate less real value each year. section 2.1.1

How Investing for Programmers covers it

How deep it goes
Defines the principle and gives a one-year interest example, but does not develop valuation formulas or detailed calculations.
Examples
Uses a $1 investment earning 5% annually and a company with unchanged net income over ten years.
What you can do after
Evaluate nominal financial amounts and company results more cautiously across different time periods.
How it connects
Links interest, inflation, income statements, revenue, and net income.
Cover of Investing for Programmers
liveBookmanning.com
Read Investing for Programmers on liveBook Get the book at manning.com

Also explained in

Compare how 2 books explain time value of money →

Related concepts

This explainer was generated by Manning's knowledge graph from the text of Investing for Programmers. The section links point to the parts of the book it draws on.