Present Value vs. Future Value in Health Care Finance
This paper examines the mathematical and conceptual relationship between present value (PV) and future value (FV) in the context of health care finance. It explains how compounding interest connects the two measures, how changes in the discount or interest rate cause FV to increase while PV decreases, and why this dynamic matters for health care organizations making long-term investment decisions. Specific attention is given to equipment purchases, loan structures, and payment timing, illustrating how health care facilities can apply PV and FV analysis to secure the best value for expensive medical equipment and extended facility use.
- Introduction to Present and Future Value: Defines present value and future value concepts
- The Mathematical Relationship Between PV and FV: Equation linking PV and FV via compounding interest
- How Interest Rates Affect Present and Future Value: Interest rate changes drive PV down and FV up
- Applications in Health Care Finance: PV and FV guide healthcare equipment and loan decisions
- Conclusion: PV and FV knowledge improves healthcare financial planning
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What makes this paper effective
- Clearly defines both present value and future value before exploring their relationship, giving the reader necessary grounding before more complex analysis.
- Connects abstract financial concepts directly to practical health care scenarios, such as equipment procurement and loan planning, making the relevance concrete and discipline-specific.
- Considers both the lender's and borrower's perspective when discussing the effects of rising interest rates, adding analytical balance to the discussion.
Key academic technique demonstrated
The paper demonstrates effective application of financial theory to a specific professional domain. Rather than treating PV and FV as purely mathematical abstractions, the authors anchor each concept in real-world health care decisions — particularly the trade-off between lump-sum payments and deferred financing — showing how theoretical finance tools inform practical organizational strategy.
Structure breakdown
The paper opens with a definition-driven introduction to both values, moves to the equation linking them, then analyzes the directional impact of interest rate changes on each measure. It closes by translating these relationships into health care contexts, including equipment acquisition and loan planning. The two-author format presents slightly different emphases but a unified argument throughout.
Introduction to Present and Future Value
There is a clear relationship between present value and future value factors in finance. Future value (FV) measures the nominal future sum of money that a given sum of money is worth at a specified time in the future, assuming a certain interest rate, or more generally, a rate of return (Smart Notes, 2013). Present value, on the other hand, is the exact value assigned based on the date of payment or a previous series of payments made prior to the inquiry.
Both the future and present value factors are associated with understanding the monetary amount of cash payments or receivables. At present value, it is the amount owed or paid right away, while future value represents a payment or receivable spread over a much longer period of time. The difference in future value represents what is known as the "time value of money" (O'Neill, 2011, p. 1).
The Mathematical Relationship Between PV and FV
Present value and future value are related in that they both reflect compounding interest — the interest rate added to the original principal. Individuals can compute the potential future value using an equation that incorporates the present value, the interest rate, and the number of periods. Present value can similarly be determined by working backward from the future value, applying the interest rate and number of terms.
The two measures are thus related because they share common variables that determine changes in both. Working with future value and present value allows investors to compare multiple dollar amounts — either paid or received — at different points in time. Essentially, the faster a debt is paid, the less interest accrues and the fewer total payments are owed.
References
O'Neill, M. (2011). Future value / present value concepts. Accounting Support Page. Retrieved October 10, 2013, from
Smart Notes. (2013). The relationship between present and future value. Boundless. Retrieved from
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