The Time Value of Money (TVM) is a fundamental financial concept that expresses the idea that a certain amount of money today has a different value than the same amount of money in the future. The primary reasoning lies in the earning potential of money. For instance, one dollar today can be invested to earn interest, making it worth more in the future than it currently is. Conversely, a dollar expected in the future is worth less than a dollar today due to factors such as inflation and opportunity cost from alternate investments.

For example, if you are offered $100 now or $110 in a year, the decision will depend on the interest rate or return you could get from investing the $100 today. If you can invest and achieve a return greater than 10% in a year, accepting the $100 now is preferable. TVM calculations are pivotal in financial tasks such as determining loan payments, investment returns, and savings growth projections.

Understanding TVM is crucial in areas like personal finance planning, corporate finance, and investment analysis. It forms the basis of discounted cash flow (DCF) models used extensively in valuation exercises.