Time value of money (TVM) is a valuable instrument that helps comprehend the value of a currency in relation to a given period. It is a method frequently applied by investors to understand how the current worth of money compares to that of the future. The time value of money would significantly impact the decision to invest in the local soccer team since with it, and I will have the permission to decide what I want to do with money.
Time Value of Money helps comprehend the best decision to take when taking into account earnings, interest, price increases and risk (Bracker et al., 2018). I will be able to understand the financial consequences of the decision I make, and it will help me be cautions with my resources when I need to invest. I will have to reflect on various aspects before finally making the investment decision. I will need to have a sensible rate of return for me to benefit from the investment.
There is a relation between TVM and the prediction of profits and losses in an organization. The present and future value concepts are helpful in the forecast since the present value dictates the worth of future cash flow in the current value. It deducts the future cash flow to the current time, and with this, one can know whether to anticipate profit or loss in the future. The cash flow attained at present can also be used in calculating the worth in the future (Marty, 2017) These two concepts help in making sound investment decisions with a possibility of profits in the future. TVM is essential in making selections between investment values that result in earnings at changing times.
References
Bracker, K., Lin, F., & Pursley, J. (2018). Time value of money. Business Finance Essentials. Web.
Marty, W. (2017). The Time value of money. In Fixed Income Analytics (pp. 5-16). Springer, Cham.