Overview

The Payback Period Calculator determines how long it takes to recover an initial investment. The payback period is a fundamental risk assessment metric — the shorter it is, the lower the investment risk. It is widely used to compare and prioritize competing investment proposals.

Formula

Payback Period = Initial Investment ÷ Annual Net Cash Flow
For uneven cash flows: find the period when cumulative cash flow exceeds the investment.

How to Use

1. 1Enter the initial investment amount.
2. 2Enter the expected annual (or monthly) net cash flow.
3. 3If cash flows are uneven, enter them individually for each period.
4. 4Click 'Calculate' to see the payback period.

Tips

• ✔A shorter payback period means lower risk, but also consider long-term profitability.
• ✔Use alongside NPV and IRR for a more comprehensive investment evaluation.
• ✔Test conservative cash flow scenarios as well.
• ✔Discounted payback period accounts for the time value of money.
• ✔Compare payback periods across alternatives to prioritize investments.

FAQ