Results
Based upon a cash flow's options, interest rate and events, FinFlow automatically calculates its net present value, net future value and internal rate of return.
These are the determining factors that are used to compare multiple cash flows or to solve for equivalence within a single cash flow.
A cash flow's net present value is the sum of the present values of all in- and outflows in a cash flow and the interest they generate, relative to the start day of the cash flow.
A cash flow's net future value is the sum of the future values of all in- and outflows in a cash flow and the interest they generate, relative to the end day of the cash flow.
A cash flow's internal rate of return is the rate that results in a zero or near zero net present value of the cash flow.
Sometimes no or multiple solutions may exist: when the conditions that may lead to such a situation are detected, FinFlow will inform you of this in the internal rate of return result.
Before trying to solve for an internal rate of return, FinFlow checks for sign changes that occur in the cash flow:
- no sign changes: this situation occurs when a cash flow contains only inflows or outflows
- one sign change: there is just one solution and it is displayed in the IRR result
- multiple sign changes: for complex cash flows, it is quite possible that there is more than one sign change, and as a result, multiple solutions exist.
When this is the case, you may be able to see what rates result in a zero net present value by switching to the Rate chart pane. However, these solutions have no financial meaning: you should not base your decisions on an internal rate of return computed for a cash flow with multiple sign changes!
Other conditions that may prevent FinFlow from displaying a calculated result are:
- negative: no positive solutions exist. This is often the case when inflows precede outflows. You may be able to calculate a positive value by changing inflows to outflows and vice versa.
- > 100 %: a single positive solution probably exists, but since FinFlow only calculates for rates up to 100 %, it is not displayed.
As with multiple sign changes, you may be able to find the value by switching to the Rate chart pane and entering a rate up to 1,000 %.
Tip: when an internal rate of return is calculated, you can control-click it to copy the result into the nominal annual rate field to let FinFlow calculate using this value.
Related topics
| Options |
| Fields |
| Panes |
| Events |
| Why should I worry about multiple sign changes? |
| What is the internal rate of return and the present value of an investment? |