The time value of money (TVM) is a core financial principle asserting that money available now is more valuable than the same amount in the future due to its earning potential. This principle is influenced by interest, inflation, and opportunity cost. Interest allows money to grow through investments, increasing its future value. Inflation decreases the purchasing power of money over time, making future money less valuable. Opportunity cost is the benefit lost when choosing one financial option over another, such as holding cash instead of investing.

TVM is crucial in investment analysis, where it is used to value future cash flows; in capital budgeting, where it is used to compare project benefits and costs; and in personal financial planning, where it is used to optimize savings, investments, and retirement plans.

Understanding TVM is vital for making informed financial decisions, considering interest, inflation, and opportunity costs. This concept guides practical investment analysis, capital budgeting, and personal financial planning, helping individuals and businesses develop sound financial strategies.