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Calculate how long it takes to recover your investment. See cumulative cash flows, exact payback period, and net returns with our free payback calculator.
The payback period is the time required for an investment's cumulative cash flows to equal its initial cost. Shorter payback periods mean faster capital recovery and lower risk.
| Year | Cash Flow | Cumulative | Remaining |
|---|---|---|---|
| 0 | -$50,000.00 | -$50,000.00 | $50,000.00 |
| 1 | +$10,000.00 | -$40,000.00 | $40,000.00 |
| 2 | +$15,000.00 | -$25,000.00 | $25,000.00 |
| 3 | +$20,000.00 | -$5,000.00 | $5,000.00 |
| 4 | +$18,000.00 | $13,000.00 | Recovered |
| 5 | +$12,000.00 | $25,000.00 | Recovered |
Tip: Payback period is useful for quick screening but ignores time value of money and cash flows after payback. Use alongside NPV and ROI for complete analysis.
Formula
Payback Period = Last Full Year + (Remaining Cost ÷ Cash Flow in Recovery Year)Last Full Year = the last year before cumulative cash flows turn positive
Remaining Cost = initial investment minus cumulative cash flows at end of last full year
Recovery Year CF = cash flow in the year the investment is recovered
Worked Example
$50,000 investment, cash flows of $10K / $15K / $20K / $18K / $12K
Did you know? A 2019 survey by the Association for Financial Professionals found that 56% of companies use payback period as a capital budgeting tool — primarily because it's intuitive and highlights liquidity risk quickly.
Sources
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