Payback Period Calculator

Calculate the payback period for investments and determine how long it takes to recover your initial investment.

Payback Period Calculator

Calculate how long it takes to recover your initial investment

Initial Investment ($)

Annual Cash Flows

Year

Cash Flow ($)

Understanding Payback Period

Simple Payback Formula:

Payback Period = Initial Investment ÷ Annual Cash Flow

Advantages:

• Simple to calculate and understand
• Focuses on liquidity and risk
• Useful for quick comparisons
• Good for uncertain environments

Limitations:

• Ignores time value of money
• Doesn't consider cash flows after payback
• May favor short-term projects
• Doesn't measure profitability

Decision Rules:

• Shorter payback is generally better
• Compare to company's cutoff period
• Consider project risk level
• Use with other financial metrics