Payback Period Calculator
Calculate the payback period — how long it takes to recoup an investment from its cash flows. A simple metric for screening capital projects.
How to use the Payback Period Calculator
- Enter your inputs into the Payback Period Calculator above.
- Results update instantly as you type — no submit button needed.
- Adjust any value to see how the result changes in real time.
The payback period formula
Payback = Initial investment / Annual cash flow (for even cash flows) · · · For uneven cash flows: cumulative cash flows until cumulative = investment
Simple payback ignores time value of money. Discounted payback uses present-valued cash flows for a more conservative answer.
Worked example
A $30,000 investment generating $7,500/year: simple payback = 30,000 / 7,500 = 4 years. If yearly cash flows are uneven ($5,000, $8,000, $10,000, $12,000), cumulative reaches $30,000 partway through year 4.
Frequently asked questions
Why is payback period popular despite limitations?
Easy to compute, intuitive to communicate, conservatively biased toward fast cash recovery. Often used as a first screen before more rigorous NPV/IRR analysis.
What is "discounted payback"?
Same idea but using present values of cash flows discounted at your required rate of return. Always longer than simple payback. Captures opportunity cost.
What payback is "good"?
Depends on the investment type. Industrial equipment: 2–5 years. IT projects: 1–2 years. Real estate: 8–15 years. Compare to industry norms and your cost of capital.