Net present value expresses a stream of future money as a single figure in today's terms.
The idea underneath it
Money now is worth more than the same money later, for three reasons: it can be put to use in the meantime, inflation erodes it, and later money might not arrive at all.
So future amounts are reduced — discounted — before being compared with money spent today. The rate used reflects what the business could otherwise earn, and its risk.
How it is read
Add up the discounted future returns, subtract what it costs today.
Positive means it earns more than the threshold built into the rate. Negative means it does not, even if the undiscounted total looked comfortable.
Internal rate of return
The same calculation asked backwards: the rate at which the investment exactly breaks even. It is compared against what the business requires — see return on investment.
Where it is genuinely useful to a small business
Anything with returns spread over years: a building, a large piece of equipment, an acquisition, a long contract.
For those, comparing raw totals overstates the distant ones badly.
Where it is not
Ordinary operating decisions. The arithmetic is heavier than the decision warrants, and payback period usually answers the real question, which is how long the business is exposed.
The weakness
It rests entirely on forecast figures and a chosen rate. Both are estimates, and a confident-looking number built on optimistic inputs is more dangerous than a rough one — see cash flow forecast.