Payback Period Calculator
Enter what an investment costs and the cash it brings in each year. The amounts can differ from one year to the next, and a year can be negative. The calculator keeps a running total and shows when it first reaches 0, in years to two decimals and in months. Enter a discount rate and it discounts each year's cash flow first, which gives the discounted payback period. If the cash flow is the same every year, switch to Same cash flow every year and type it once.
How to use the Payback Period Calculator
- Pick Cash flow for each year, or Same cash flow every year if the amount never changes.
- Enter the initial investment, the amount you pay up front.
- Type the cash each year brings in. Put a minus sign in front of a year that costs money. Add year adds a row and Remove deletes one, up to 100 years. A blank year between filled ones counts as 0.
- For the discounted payback period, enter a discount rate. Leave it blank, or at 0, for the simple payback period.
- Press Calculate. You get the payback period in years and in months, and a table with each year's cash flow and the cumulative balance after it.
The payback period formula
Payback period = (t − 1) + Shortfall at the end of year t − 1 ÷ Cash flow in year t Discounted cash flow in year t = CF_t ÷ (1 + r)^t Same cash flow every year: Payback period = Initial investment ÷ Annual cash flow
t is the first year in which the cumulative balance reaches 0. The shortfall is how far below 0 the balance was a year earlier. Counting only part of year t treats that year's cash as arriving evenly through the year. For the discounted payback period the calculator runs the same steps on the discounted cash flows, with r as the discount rate in decimal form. The years are rounded to two decimals. The months are the years times 12, rounded up to a whole month. The table rounds each figure to the cent, and the calculator works with the unrounded values.
Worked example
A $10,000 investment brings in $3,000, $4,000, $2,000, $5,000 and $1,000 over five years. After the first three years the cumulative balance is −$7,000, −$3,000 and −$1,000. Year 4 brings in $5,000, so the payback period is 3 + 1,000 ÷ 5,000 = 3.20 years, or 39 months. At a 10% discount rate the first four years are worth $2,727.27, $3,305.79, $1,502.63 and $3,415.07 today. The discounted balance after year 3 is −$2,464.31, so the discounted payback period is 3 + 2,464.31 ÷ 3,415.07 = 3.72 years, or 45 months. These are the inputs the calculator starts with. Type 10 into the discount rate to see the second result.
Frequently asked questions
How does the calculator handle uneven cash flows?
It keeps a running total. Year 0 is the investment as a negative amount, and every year adds that year's cash flow. The payback period ends in the first year the total reaches 0, and only the part of that year needed to close the gap counts. The table under the result shows the cash flow and the running total for every year you entered.
What is the discounted payback period?
The same count, after each year's cash flow is divided by (1 + r)^t, where r is your discount rate and t is the year. A dollar in year 5 then counts for less than a dollar in year 1. When every cash flow is positive, the discounted payback comes later than the simple one, if it comes at all. In the example above it is 3.72 years at 10%, against 3.20 years without discounting.
What if the investment never pays back?
If the running total is still below 0 after the last year you entered, the calculator says the investment does not pay back within those years and shows the balance it ends on. It does not guess at years you have not entered, so add more years if you expect more cash.
What happens with a negative cash flow in a later year?
A negative year lowers the running total and can push the payback later. If the total has already reached 0 and a later year takes it below 0 again, the calculator still gives the first year it reached 0 as the payback period. It also names the year the total fell back and the balance it ends on.
What if the cash flow is the same every year?
Switch to Same cash flow every year and enter the amount once. The calculator divides the investment by the annual cash flow, so $50,000 at $12,000 a year pays back in 4.17 years, or 50 months. Typing $12,000 into five years of the other form gives the same answer. This mode has no discount rate. For a discounted payback with even cash flows, type the same amount into each year and add the rate.
Why are the months rounded up?
A payback that ends partway through a month still needs that month. The years are rounded to two decimals, half up, and only the months are rounded up. At $50,000 and $10,250 a year the payback is 4.88 years, or 58.54 months, and the calculator shows 59 months.
What does the payback period leave out?
Everything after the payback point. Two investments with the same cost and the same early cash flows get the same payback period, even if one keeps paying for 20 years and the other stops after 5. For a figure that counts every year, the IRR calculator gives the internal rate of return and the NPV at your discount rate.