Concept Architecture
Concept
Theoretically, Future Value (FV) is the value of a present sum of money or a series of cash flows at a specified future date after accounting for the accumulation of interest or growth over time. It is based on the principle of the time value of money, which recognises that money available today can earn a return and is therefore worth more than the same nominal amount received in the future. In health economics, Future Value is primarily used in financial planning, budget forecasting and the reverse application of discounting.
Mathematically, Future Value is calculated by compounding a present value using an appropriate interest or discount rate over a specified number of periods. The calculation may be applied to a single lump sum or to a series of periodic payments. The mathematical framework represents the accumulated value generated through compound growth.
In practice, Future Value is applied when projecting future healthcare expenditures, forecasting programme budgets, estimating future investment values or converting present costs into future monetary values. Although economic evaluations typically discount future costs to present value, Future Value calculations are frequently used in financial management and budget impact forecasting.
Purpose
Used to estimate the future monetary value of present costs, investments or cash flows after compound growth over a specified time period.
Mathematical Formulae
Primary Formula
FV = PV(1 + r)�
where:
- FV = future value
- PV = present value
- r = interest or growth rate per period
- n = number of compounding periods
Supporting Formulae
Future value of an ordinary annuity:
FV = PMT ? ((1 + r)� ? 1) / r
where:
- PMT = periodic payment
Related Mathematical Methods
- Compound interest
- Present value analysis
- Discounting
- Time value of money
- Budget forecasting
Example
A health authority invests �2,000,000 in digital health infrastructure. Assuming annual compound growth of 3.5% over 10 years, the future value is:
FV = 2,000,000(1 + 0.035)??
FV = 2,000,000 ? 1.4106
FV � �2,821,200
The investment is therefore projected to have a future value of approximately �2.82 million after ten years.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| FV | =FV(3.5%,10,0,-2000000) | Calculates the future value of a healthcare investment or budget. |
| POWER | =2000000*POWER(1.035,10) | Calculates compound growth manually. |
| PRODUCT | =2000000*(1+3.5%)^10 | Projects future expenditure or investment value. |
| RATE | =RATE(10,0,-2000000,2821200) | Estimates the annual growth rate from present and future values. |
VBA (Optional)
Automate future value projections for healthcare budgets, investment portfolios or long-term financial planning across multiple scenarios.
Sources
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes. 4th ed. Oxford University Press; 2015.
- Briggs A, Claxton K, Sculpher M. Decision Modelling for Health Economic Evaluation. Oxford University Press; 2006.
- Boardman AE, Greenberg DH, Vining AR, Weimer DL. Cost-Benefit Analysis: Concepts and Practice. 5th ed. Cambridge University Press.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill.
- NICE. Health Technology Evaluation Manual. Latest edition.
Related Concepts (2)
Library
Publications
1
Methods for the Economic Evaluation of Health Care Programmes — Drummond, Sculpher, Claxton, Stoddart & Torrance, 4th Edition ed., 2015 (Oxford University Press)
The standard international reference text for economic evaluation methods in health care, covering cost-effectiveness, cost-utility and cost-benefit analysis, measurement of costs and outcomes, evidence synthesis, and the characterisation of uncertainty.
BookView source →
Frequently Asked Questions (6)
What is future value?
The value a present sum of money will grow to after a specified period, given a particular rate of return.
Source: Brealey, Myers & Allen 2019
How is future value calculated?
A present sum is multiplied by one plus the rate of return, raised to the power of the number of periods, which gives the amount it will have grown to. The calculation assumes returns are reinvested and earn the same rate, which is what produces compounding and makes the growth non-linear in time. Over long horizons the compounding dominates, so small differences in the assumed rate produce large differences in the resulting figure.
Source: Brealey, Myers & Allen 2019
How does future value relate to present value?
They are inverse operations using the same rate. Future value moves a sum forward in time by compounding it; present value moves a sum backward by discounting it. Economic evaluation works almost entirely in present value, since the decision is taken now and flows arriving at different future dates must be brought to a common point. Future value is used mainly where the question concerns what a fund will be worth rather than what a future obligation is worth today.
Source: Brealey, Myers & Allen 2019
Where does future value arise in health financing?
In the funding of long-term obligations such as pension schemes and provisions for future claims, where the question is whether current contributions will accumulate to meet a liability falling due decades ahead. It also arises in appraising capital schemes financed by borrowing, where the accumulated cost of servicing debt must be projected. In both cases the assumed rate of return is the dominant assumption and small changes to it move the projected position substantially.
Source: Gapenski 2015
What assumptions does future value depend on?
A constant rate of return over the whole period, which is unlikely over long horizons, and reinvestment of all returns at that same rate. It also assumes the sum is not eroded by inflation, so a nominal future value overstates the purchasing power that will actually be available. Where the question concerns real resources rather than nominal amounts, the calculation should use a real rate and the result should be described as such.
Source: Brealey, Myers & Allen 2019
Why does the rate matter more than the horizon in a future value calculation?
Because compounding is exponential in the rate as well as in time, so the effect of a difference in the assumed rate grows with every period. Two projections differing by a small margin in the rate diverge slowly at first and substantially over decades. This is why long-horizon financial projections report a range of rates rather than a single figure, and why the rate assumption receives more scrutiny than the arithmetic.
Source: Brealey, Myers & Allen 2019
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 13 Aug 2025
Content version: 1.0.0
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- Persistent URI
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- Term code
- HE-EE-DC-008
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