The concept of present value refers to the current worth of a sum of money that you expect to receive in the future, discounted back to today’s value. This discounting accounts for factors like interest rates and inflation, which affect the purchasing power of money over time. Essentially, it helps determine how much future cash flows are worth in today's terms. Calculating present value is important in finance and investing, as it allows individuals and businesses to make informed decisions about investments, loans, and savings. By understanding the present value, one can assess whether future cash inflows justify current expenditures or investments.