Guide To Excel For Finance: PV And FV Functions
The Present Value or "PV Function" in Excel helps the user determine the current value of a financial asset. For instance, analysts can value a stock by forecasting its future profits, or cash flows, and discounting them back to today to get a current, or present value, for the stock. If it differs much from the value listed in the stock market, it may be either a buy or a sell.
Let's look at an example. Assume a company earns a profit of $100,000 annually over a period of 10 years. The "Type" is a "1" or "0" and details whether the earnings would occur at the beginning of each year, or end of each year, respectively. If an analyst has a price target of $100 per share, or a $1 million firm value assuming 10,000 shares outstanding, then the estimated present value of the stock is $29.04. If the current market price is above this level, the stock would not be worth buying. If it traded at less than $29 per share, then it would be worth an investment, based off of the inputs the analysts used in his analysis.
FV Function
You may have already noticed that the Future Value or "FV Function" in Excel was part of the discussion for the analyst valuing the stock, above. If we keep all of the variables the same, but assume we know the current firm value is $350,000, or $35 per share, then the future value of the stock in 10 years would be $84.53 per share. Here is what the inputs would look like:
Guide To Excel For Finance: HLookup And VLookup

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