Startups
Payback period with level cash flows
Works exactly when the annual cash inflow is the same every year. With uneven flows you accumulate year by year instead.
The Formula
payback = initial investment / annual inflow
Works exactly when the annual cash inflow is the same every year. With uneven flows you accumulate year by year instead.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| P | Payback period | years | Years until cumulative inflow equals the outlay. |
| I | Initial investment | currency | Cash spent at the start of the project. |
| A | Annual cash inflow | currency | Net cash generated per year. |
What Each Symbol Means
Pyears
Payback period
Years until cumulative inflow equals the outlay.
Icurrency
Initial investment
Cash spent at the start of the project.
Acurrency
Annual cash inflow
Net cash generated per year.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate payback period page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Payback Period, filed under Business. Every number the guide produces comes from substituting into this one line.