# Difference Between NPV and XNPV

Spreadsheet software like MS Excel is extensively used for accounting purposes. It makes the calculation easier and saves time as compared to manual calculations which on the other hand is time-consuming and prone to human error.

/10

Finance Quiz

1 / 10

What is the primary role of the Federal Reserve System in the United States?

2 / 10

What is a Roth IRA?

3 / 10

What is the difference between debt and equity?

4 / 10

If  a bank thinks lending money  to a certain business is risky it will:

5 / 10

What is the stock market?

6 / 10

Which one is/are financial assets?

7 / 10

Why do companies engage in M&A?

8 / 10

What is a stock dividend?

9 / 10

The shares of well-established, financially strong and big companies having remarkable Record of dividends and earnings are known as:

10 / 10

What is the primary goal of financial planning?

Summary

In Excel, NPV (Net Present Value) and XNPV are very common functions used for calculating cash flow.

## NPV vs XNPV

The difference between NPV and XNPV is that in NPV the calculations are made considering that the future payments that will be made are going to be based on an equal time interval. On the other hand, XNPV is the modified and more precise version of NPV. XNPV assumes that the cash flow does not arrive in an equal time interval which is more practical.

NPV stands for net present value. It is a very important part of accounting as it deals with investment returns and shows all the values of future cash flows. The cash flows include both positive and negative values which are calculated considering that the cash payment is regulated and periodic.

XNPV is used in determining net present value when the time interval is not regular or periodic. It can be calculated when the period between two payments is unknown.

This is the reason, why the formula for XNPV does not contain a fixed period in it and it is useful for irregular payment processes.

## What is NPV?

NPV is a very common term used in the accounting sector while preparing spreadsheets for period cash flow. It can be defined as the net difference between the existing value of net cash arrival and the existing value of the cash expenditure.

NPV is used for the calculation of net cash flow when the cash payment takes place between regular time intervals. In accounting, to see the potential that lies in investing in a new project or an investment, NPV is used.

The value of NPV is used during the preparation of the capital budget to understand the risks and opportunities of new investments. When the inflow/outflow of cash takes place periodically, the formula used for the calculation of NPV is given below:

NPVt=1 to T  = ∑  Xt/(1 + R)t – Xo

Here, Xt is the total cash inflow for a time period t

Xo is the expenditure due to net initial investment

R denotes is the discount rate, and

t is the total time period

A company chooses a project when the NPV value is positive because it means the return after the investment will be more than the total project expenditure. A negative value of NPV incurs loss while zero value requires addressing other factors.

## What is XNPV?

The concept of XNPV is similar to that of NPV only with the main difference of time interval. While calculating XNPV, the cash payments are not considered to be taking place at an equal time period. This seems like a better and more practical option and it also increases the precision.

The formula used for the calculation of XNPV is given below:

XNPVt=1 to N  = ∑  Ci/[(1 + R)^((dx-do)/365)]

Here, dx denotes the date of the x’th expense

do is the date of 0’th expenditure

Ci is the i’th expense, and

R is the discount rate

In MS-Excel, while calculating the value of XNPV, discount rate, cash inflow/outflow, and dates are required. In the case of selecting the range of values (cash inflow/outflow), positive terms indicate income and negative terms indicate payments.

## Main Differences Between NPV and XNPV

1. Both  NPV and XNPV show the present value of all the future cash flows (positive and negative) by using the discount rate but NPV uses the total time period to calculate it while XNPV uses the specific dates of expenses.
2. While NPV calculates the net present value when the payments are in equal time intervals, XNPV is used when payments are irregular.
3. In Excel, the discount rate and values are required for the calculation of NPV whereas the additional range of dates needs to be selected for calculating XNPV.
4. In XNPV, error messages are common since the dates are not given in the right format in excel sometimes which doesn’t occur in NPV.
5. The value returned by using the XNPV formula is more precise at it doesn’t assume equal time internals like in the case of NPV.
One request?

I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️

What do you think?
0 0 0 0 0 0 