Calculate how long it takes to recover your initial investment from cash flows. Includes both simple payback and discounted payback period.
Investment Cash Flows
$
$
$
$
$
$
$
$
$
$
%
Simple Payback Period
—
—
Discounted Payback
—
Simple Payback
—
Discounted Payback
—
Total Cash Flows
—
Net Profit
—
Year
Cash Flow
Cumulative
PV
Cum. PV
FAQ
What is payback period?
Payback period is the time required for cumulative cash inflows to equal the initial investment. Simple payback ignores the time value of money; discounted payback discounts cash flows at the cost of capital.
What is discounted payback period?
Discounted payback accounts for the time value of money by discounting future cash flows to present value. It is always longer than simple payback and is a more conservative measure.
What is a good payback period?
Shorter is better. Under 2-3 years is excellent for business investments. Many companies set a maximum payback cutoff (e.g., 5 years). The appropriate period depends on industry, project risk, and capital cost.
What are the limitations of payback period?
Payback period ignores cash flows after the breakeven point and does not measure total profitability. A project with a short payback but low total return may rank higher than a more profitable long-term project. Always use alongside NPV and IRR.