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How to use
The payback period calculator estimates the first point when cumulative cash flows recover the initial investment. It reports simple payback and discounted payback. If recovery occurs within a period, the calculator assumes that period's cash flow accrues evenly to estimate the fractional period.
- Enter the positive initial investment.
- Enter net cash flow for each period in order; individual flows may be negative.
- Enter the discount rate per period and calculate simple and discounted payback.
How it is calculated
Example
Example: investment 100,000 with flows 25,000, 30,000, 35,000, 30,000, 25,000 recovers during period 4. After three periods 10,000 remains, so the simple payback is 3 + 10,000/30,000 ≈ 3.333 periods.
Important notes
Payback alone does not measure total profitability or cash flows after recovery. Use it alongside NPV, IRR and risk analysis. Results are informational and are not financial or investment advice.
Worked examples and interpreting results
Initial investment 1000 and later flows 400, 400, 400 recover the investment after 2.5 periods, assuming uniform receipt within the third period.
| Case | Calculation | Result |
|---|---|---|
| Payback period | 2 + (1000 − 800) ÷ 400 | 2.5 |
| Excess after three periods | 3 × 400 − 1000 | 200 |
How to check the result
Enter investment as positive, list only subsequent flows, and set discount rate zero. Fractional recovery assumes linear receipt within a period; payback does not measure total profitability after recovery.
Frequently asked questions
Simple versus discounted payback?
Simple payback adds nominal flows; discounted payback first divides period t's flow by (1+r)^t.
What if the investment is never recovered?
The tool reports no recovery within the entered horizon rather than inventing future cash flows.
Can cash flows be negative?
Yes. Later costs or losses can be represented as negative periodic flows.