In economic analysis, what is usually considered a positive indicator?

In economic analysis, a Net Present Value (NPV) greater than 0 is considered a positive indicator because it signifies that the projected earnings (in present dollars) from an investment or project exceed the anticipated costs (also in present dollars). This implies that the investment is expected to generate a profit, making it financially viable and attractive to pursue.

When the NPV is positive, it indicates that the investment will add value to the company, thus justifying the allocation of financial resources to it. Investors and decision-makers often look for projects with a positive NPV as a sign that they are likely to yield beneficial returns over their lifespan.

In contrast, when the NPV is less than 0, it suggests that the costs outweigh the benefits, making the investment unwise. If the NPV equals 0, the investment breaks even, meaning it neither adds nor subtracts value; while it is not necessarily a negative outcome, it does not provide the incentive to proceed with the project. Lastly, an NPV that fluctuates unpredictably indicates uncertainty and risk, making it difficult to rely on as a solid indicator of potential success.