Time Value Of Resources

Financial analysts must consider both the time value of money and the time value of resources. Resources can be categorized as commodities, either natural or human. Human resources are considered to be labor or intellectual capital and are associated variable costs in a financial equation. Naturally occurring resources are valuable in their unrefined state and are either renewable or non-renewable. The time value of natural resources must also be factored in when considering the time value of money.

The United States' oil reserves are manipulated by balancing the time value of both money and resources. Filling American oil reserves is based upon the value of oil over time, rather than volume of oil over time, leading experts to purchase reserve oil when the resource has a comparatively low market value (Strategic Petroleum Reserve, 2006). Acquiring oil over time, not volume also reduces market demand when prices are inflated.

The time value of resources is also manipulated by resource availability. When calculating the time value of money, one dollar today is more valuable than one dollar tomorrow, because of investment opportunities. However, scarcity, a condition of limited resources, increases the future value of non-renewable resources due to increasing demand and decreasing availability. Analysts must factor the future value of money against the future value of resources as money to maximize return on investments.

References

Strategic Petroleum Reserve: Available Oil Can Provide Significant Benefits, but Many Factors Should Influence Future Decisions about Fill, Use, and Expansion: GAO-06-872. (2006). GAO Reports, Retrieved Friday, May 11, 2007 from the MasterFILE Premier database.