Corporate finance
Payback Period Calculator
Estimate when uneven annual cash flows recover an initial investment.
Results
Enter values and press Calculate to see an explanation.
Result interpretation
A shorter period means faster recovery. Simple payback ignores discounting and cash flows after recovery.
Read the learning guide →FORMULA
Formula
Payback is full years plus the unrecovered balance divided by recovery-year cash flow.
Formula and assumptions
The initial outlay occurs at year 0. Later annual flows may differ or be negative. A fractional year assumes even arrival within that year; recovery means the first crossing of zero.
WORKED EXAMPLE
Example
- Enter an initial investment of 1,000 and annual cash flows of 400 and 800.
- After year 1, cumulative cash flow is −600; year 2 crosses zero.
- Divide the remaining 600 by year-2 cash flow 800 to get 1.75 years.
Frequently asked questions
What if the investment is not recovered?
The result says not recovered; the yearly table still shows the cumulative shortfall.
How is a fractional year estimated?
It assumes cash arrives evenly within the recovery year and divides the remaining balance by that year's flow.
How does payback differ from NPV?
NPV discounts all modeled cash flows, including those after recovery; payback finds only the first recovery time.