Find how long an investment takes to recover its cost from its annual cash flow.
Understanding the payback period calculation
The payback period is how long an investment takes to earn back what you put in. Enter the initial cost and the annual cash flow to get the payback time in years and months.
Shorter paybacks are generally less risky, though payback ignores what happens after.
How to use it
- Enter the initial investment.
- Enter the annual cash flow it generates.
- Read the payback period.
How the number is calculated
payback period = initial investment ÷ annual cash flow
Worked example
Worked through, a initial investment of 50,000, annual cash flow of 12,000 produces a payback period of 4.17. Underneath, In months comes out at 50 months and Annual ROI at 24%. Change any field and every figure updates as you type.
Frequently asked questions
What is the payback period?
The time it takes for an investment’s cash flows to repay its initial cost.
Is a shorter payback better?
Generally yes for risk, but payback ignores returns after breakeven and the time value of money. Pair it with ROI or PV.
What’s a good payback period?
It varies by industry and project. Compare against alternatives rather than a fixed benchmark.