What does the time value of money concept emphasize?

The concept of the time value of money emphasizes that money available now is worth more than the same amount in the future due to its potential earning capacity. This principle is rooted in the idea that money can earn interest, leading to increases in value over time through investments or interest-bearing accounts.

By receiving money now, an individual can invest it and generate returns, which means its present value is higher compared to the same amount received in the future when it hasn’t had the opportunity to earn. This is fundamental in finance, as it influences decisions related to investments, savings, loans, and financial planning. Understanding this concept helps individuals and businesses make informed choices regarding the timing of cash flows and investment opportunities.