APV, or adjusted present value, is a way to measure the worth of a leveraged firm. If you sum the net present value of an organization with the present value of the financing that has had to take place, you get a better sense of that company's actual value. This can be valuable for financial managers looking to make investment decisions based on metrics that are as accurate as possible.
APV is ideal for organizations whose ratio of debt to equity is in constant flux. Companies that go through many different projects that are capital-intensive would count, as would opportunities to carry out a leveraged buyout.
While net present value (NPV) only looks at the more visible items contained in assets and liabilities, APV also looks at other real-world costs that will most certainly affect operations. This include the implications of filing for bankruptcy, issuing bonds and writing off certain expenditures as tax deductions.
Not all debt repayments appear in the figures that go into the calculation of net present value (NPV). On the other hand, any loan repayment schedules must be a part of calculated APV. If one company is pondering the acquisition of another, knowing those schedules would be crucial.
At the time of publication, only about 11 percent of firms in the United States use APV when considering the acquisition of other companies. It is a methodology that was born on a college campus and has been slow to spread in popularity. Its enhanced accuracy in providing a look at a company's actual worth, though, is gaining ground among CFO's across the country.