Time Value of Money

Someone offers you ₹100 today or ₹100 one year from now. You take today's — obviously. But why exactly?

Three reasons hide inside that instinct. Today's ₹100 can be put to work and grow (even a boring deposit pays interest). Prices rise, so next year's ₹100 buys less (inflation). And a promise of future money might simply not be kept (risk).

So here's the sharper question: how much money today would make you genuinely indifferent to receiving ₹100 next year? Maybe ₹92? That number — today's equivalent of a future amount — is called present value, and the percentage you used to shrink the future amount is the discount rate (in this example, roughly 8–9%).

This one idea is the engine under every valuation method that exists. A stock is a claim on a company's future cash. But futures can't be compared to today's price directly — ₹100 arriving in 2035 is not worth ₹100 now. Valuation is fundamentally the act of translating all those future rupees into today's rupees, then asking: is the market's price above or below that translated total?

The reverse direction matters just as much: compounding. ₹100 growing at 15% a year doesn't become ₹250 in 10 years — it becomes about ₹405, because each year's growth itself grows the next year. This is why starting early beats starting big, and why a business that reinvests profits at high returns (remember ROCE?) becomes so much more valuable over decades than one that doesn't.

Discounting and compounding are the same machine running in opposite directions: compounding pushes today's money forward through time; discounting pulls future money back to today.