Payback Period Calculator
Payback period answers the simplest question in capital budgeting: how long until I get my money back? It ignores everything that happens afterwards, which is both its weakness and its appeal.
Payback period in years
4
- Payback period in months
- 48
- Net gain after five years
- $12,500.00
- Cash returned per unit invested
- 1.25
Values update as you type. This calculator covers the single scenario its formula assumes — see Common Mistakes for what it leaves out.
The formula this calculator uses
payback period = initial investment / annual cash inflow
- initial investment
- The cash outlay made at the start
- annual cash inflow
- Net cash the investment generates each year
- payback period
- Years until cumulative inflow equals the outlay
- cash flow multiple
- Total inflow over the horizon divided by the outlay
How to check the result by hand
- 1
Add up everything the investment costs
Purchase price, installation, training and any extra working capital it ties up. Fifty thousand is the default outlay.
- 2
Work out the net annual cash inflow
Revenue the investment generates minus the cash costs of running it. Twelve thousand five hundred a year is the default, and it must be cash rather than accounting profit.
- 3
Divide to get the payback in years
Fifty thousand divided by twelve thousand five hundred is four years. If the annual inflow varies, accumulate year by year instead and interpolate.
- 4
Multiply by twelve for months
Four years is forty eight months. Fractional years are easier to compare with the business's own planning cycles when expressed in months.
- 5
Check the horizon, not just the payback
Over five years the same investment returns sixty two thousand five hundred, which is one point two five times the outlay. A short payback with a poor long-run multiple is still a weak investment.
For worked examples, common mistakes and the limits of this formula, read the full How To Calculate Payback Period page.