What is the Time Value of Money (TVM) concept in finance?

The Time Value of Money (TVM) concept is a fundamental principle in finance that asserts a dollar received today has greater value than a dollar received in the future. This is primarily due to the potential earning capacity of money; if you have a dollar now, you can invest it to earn interest or returns, thus increasing its future value. This principle is foundational for understanding concepts like interest rates, investment valuation, and financial decision-making.

Options related to depreciation or methods for evaluating cash flows address specific financial practices but do not capture the essence of the Time Value of Money. While evaluating cash flows can correlate with TVM principles, it does not define the core concept, which is centered on the value differential between money across time. Thus, recognizing that money has a different value based on when it is received is key to sound financial management and investment strategies.