In one sentenceThe principle that a riyal you have today is worth more than a riyal you receive in the future, because you can invest it until then.
Simply put
If you invest your money today at a certain return, it grows over time. That is why it is not right to add a riyal from today to a riyal in five years as if they were equal.
This principle is the basis of net present value, the internal rate of return, financing installment calculations and decisions to buy for cash or in installments.
Worked example
A workshop owner has 10,000 SAR he can put into an investment that pays 5% a year, and he reinvests the return.
After one year = 10,000 × 1.0510,500 SAR
After two years = 10,500 × 1.0511,025 SAR
Value of 10,000 SAR today after two years11,025 SAR
Formula: Future value = present value × (1 + rate)^number of years
Don't confuse it with
Discount rateThe time value is the principle, and the discount rate is the number with which you apply it.