Prodwave
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Knowledge Base

Investment & Valuation

Investment metrics — NPV, IRR, payback period, Cash Runway, and project profitability assessment.

NPV

NPV=∑tCash Flowt(1+r)t−Initial Investment\text{NPV} = \sum_{t} \frac{\text{Cash Flow}_{t}}{(1 + r)^{t}} - \text{Initial Investment}

Net Present Value — the total value of all future cash flows discounted at a given rate. NPV > 0 means the project creates value.

How we calculate in Prodwave: Each monthly cashFlow (bankNetIncome) is discounted at discountRate and summed. The initial investment (initialCash) is subtracted.

Affects: Investment feasibility assessment, project comparison

IRR

NPV=0 at IRR rate (found iteratively)\text{NPV} = 0 \text{ at IRR rate (found iteratively)}

Internal Rate of Return — the discount rate at which NPV = 0. Shows the minimum project return. IRR > discount rate = project is profitable.

How we calculate in Prodwave: Found using bisection method: searching for the rate at which NPV equals zero. Shown as annual percentage.

Affects: Comparison with alternative investments, investor required return

DPP

DPP=month when cumulative discounted Cash Flow≥0\text{DPP} = \text{month when cumulative discounted Cash Flow} \geq 0

Discounted Payback Period — number of months until the initial investment is recovered, accounting for the time value of money.

How we calculate in Prodwave: Discounted cashFlows are accumulated monthly. DPP = month when the cumulative sum first becomes non-negative.

PI

PI=PV(Cash Flows)Initial Investment\text{PI} = \frac{\text{PV(Cash Flows)}}{\text{Initial Investment}}

Profitability Index — ratio of the present value of future flows to the investment size. PI > 1 means the project is profitable.

How we calculate in Prodwave: PI = sum of discounted positive cashFlows / initialCash.

Cash Runway

Cash Balance0=Initial Investment+Net Profit0Cash Balancet=Cash Balancet−1+Net Profitt\begin{aligned}\text{Cash Balance}_{0} &= \text{Initial Investment} + \text{Net Profit}_{0} \\\text{Cash Balance}_{t} &= \text{Cash Balance}_{t-1} + \text{Net Profit}_{t}\end{aligned}

Safety margin — how many months the company can operate at the current expense and revenue levels before running out of cash.

How we calculate in Prodwave: Cash Balance is built monthly: cashBalance[t] = cashBalance[t-1] + bankNetIncome[t]. Runway = month when cashBalance first goes below zero.

Affects: Funding needs, business safety margin

Burn Rate

Burn Rate={Total Expenses−Total Income,if Expenses>Income0,otherwise\text{Burn Rate} = \begin{cases} \text{Total Expenses} - \text{Total Income}, & \text{if Expenses} > \text{Income} \\ 0, & \text{otherwise} \end{cases}

Cash burn rate — the size of the net loss per month (when expenses exceed revenue).

How we calculate in Prodwave: burnRate = totalCost > totalIncome ? totalCost - totalIncome : 0. Average burn rate = Σ burnRate / forecastMonths.

Discount Rate

Discount rate — a percentage reflecting the cost of capital and project risk. Used to bring future flows to present value.

How we calculate in Prodwave: Set by the user in model parameters (default 15%). Applied in NPV, DPP, PI calculations.

Affects: NPV, DPP, PI — all discounted metrics

Initial Investment

The size of the initial capital (investment) — starting cash balance before operational activities begin.

How we calculate in Prodwave: Set by the user as initialCash in parameters. Used as the starting cashBalance value and subtracted in NPV calculation.

Cash Balance

Cash Balancet=Cash Balancet−1+Net Profitt\text{Cash Balance}_{t} = \text{Cash Balance}_{t-1} + \text{Net Profit}_{t}

Cash balance — the balance at the end of each month, accounting for all revenue and expenses since the project start.

How we calculate in Prodwave: cashBalance[0] = initialCash + bankNetIncome[0]. Then: cashBalance[t] = cashBalance[t-1] + bankNetIncome[t].

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