Purely discounted income: features of its definition

Purely discounted income is the expected value of the flow of payments, which is brought to the value at a specific point in time. Often, this value is calculated during the analysis of economic efficiency in investment for future income.

What is discounting?

It is necessary to define such a concept as discounting. This is a reduction to a certain current value, which is carried out at a certain rate. Purely discounted income must be calculated to reflect the real value of the amount of money available to the subject today, but taking into account the impact of various factors in the future. Such calculations are based on the following reasons:

• Investing this amount in other revenue transactions in order to obtain some profit in the future;
• A decrease in the purchasing power of money and inflation;
• Risk of shortfall in expected profits.

Yield: its internal norm

Purely discounted income is the basis for the calculation of the rate of return, which gives a characteristic of the return on investment. The internal indicator of profitableness is equal to that rate of discounting, at which presence the income becomes equal to zero.

Net present value: formula

Income from cash flows is generally summarized within specific time intervals (every month, quarter, and year). In other words, the total cash flow equals their sum at all concrete steps.

The higher the purely discounted income, the more effective the project. In case of its negative value, the investor may incur losses (low efficiency).

Profit monitoring

The marketing system at any enterprise creates all the conditions for its effective operation with the aim of increasing profits. However, all necessary costs that a business entity can incur must be taken into account. Thus, any projected profit from the implementation of a project is in the form of a difference in income from its work on perception and without its use.

Example of determining net discounted income

At enterprises with various types of activities, self-respecting leaders instruct their specialists to calculate the net discounted income. An example widely used in this area of calculation is advertising agencies.

The bulk of advertising revenue is the monetary resources that come from the advertisers themselves. With the introduction of some new project, the amount of revenue should increase. In this case, the calculation of the economic effect is reduced to the summation of the cost of advertising messages received for the services of their placements. With the use of mechanisms of new positioning quality (for example, Internet advertising), image and popularity are strengthened. With an increase in the price for renting space used for advertising, or the growth in the cost of placing advertising itself, it makes sense for the managers of advertising agencies to change the pricing scheme for its placement and enter, for example, the payment for each attracted customer.