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Date: 2019-05-19 Page is: DBtxt001.php L0700-CC-PRESENT-VALUE


CORE CONCEPTS
PRESENT VALUE
A COMMON WAY TO COMPUTE VALUE

MONEY WEALTH / MONETIZED VALUE
Money / Profit growth / GDP growth / Stock Prices / Cost push inflation / Wages chasing prices

PRESENT VALUE

The idea of using a net present value calculation to value a company based on projected future profits has been a standard idea in business schools since the 1950s, and this works for valuation based simply on money and financial capital. In this computation, a future projected flow of profits is discounted to its present value, and the total of these becomes the net present value.
The same idea should also be applied to othere events that projected to occur in the future. For example the cost of extreme weather events can be estimated, and then disounted to a net present value. However, in this case an underlying important assumption is going to be radically different.


Where the assumption about profits is that they are more and more likely not to be achieved in the future and accordingly the discounting reduces the number ascribed to future profits as they go further into the future, in the case of extreme weather events they are almost certainly going to get more and more costly into the future and the same sort of discounting should not be used. Rather, the net present costing from future extreme weather events should be augmented not discounted.


CONVENTIONAL MONEY IS THE MEASURE USED IN THE ECONOMIC PART OF THE SYSTEM

We use MONEY for FINANCIAL TRANSACTIONS and as a store of WEALTH and CAPITAL.


This image shows how the purchasing power of the US dollar has deteriorated over time. The purchasing power in recent years is just a small fraction of what it was at the beginnning of the 20th century.

Everyone is familiar with money as a unit of account. Money serves two purposes:
  1. as a medium of exchange for the transaction; and
  2. as a store of value.
Money and double entry accounting is a very powerful system for accountability


When the population and the economy were relatively small, the impact on society and the environment could be ignored without much consequence.

But the 21st century is different. The population of the world is at record levels, and the degradation of the environment has become consequential, whether it is air pollution, water pollution, land fill, deforestation, ocean plastic or any number of other issues.

There is a need now for UNITS OF ACCOUNT that are relevent for ALL the impacts associated with economic transactions.

The money measure needs to be better understood. It is common to use a reference currency like the US dollar, but local currency also matters, and there may be funding currency as well. Besides the US$, other reference currencies might be the Euro, Japanese Yen or Chinese Yuan




The text being discussed is available at


TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative.
It has been funded by family and friends plus donations from well wishers who understand
the importance of accountability and getting the management metrics right.
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