Present value identity

The present value identity is an equality of the present value of residual profits and cash flows .

${\displaystyle PV=\sum _{t=1}^{n}{\frac {RG_{t}}{(1+i)^{t}}}=\sum _{t=1}^{n}{\frac {CF_{t}}{(1+i)^{t}}}}$

Because the interest rate i for cash flows and residual profits is necessarily the same, the present value is equal at any point in time t ( mathematical identity ). Obviously, a present value identity represents a simplification of the comparability of present values. Thus, the value determined through present value identity is compatible with the shareholder value of value-oriented corporate management .

Web links

• Present value identity , Gabler's economic dictionary
• Value-oriented corporate management with examples of present value identity (PDF file; 45 kB), Trier University of Applied Sciences