From the initial investment and annual net cash flow, compute the years and months needed to recover the investment.
Input Data
Results
At a glance:The payback period is the time required for cumulative net cash flows to equal the initial investment.
Formula
years = floor(initialInvestment / annualCashFlow)
extraMonths = (remainder / annualCashFlow) × 12
paybackYears = years + extraMonths / 12
How to Use
- Enter the initial investment.
- Enter the annual net cash flow.
- Review the years, extra months, and payback period.
FAQ
Is a shorter payback period always better?
Generally yes — a shorter payback means the principal is recovered sooner, capital is locked up for less time and the risk is lower. But it does not show how much you earn after breaking even; a slower-payback project with high long-term returns may be worth more overall, so do not look at payback alone.
Why use it together with NPV or PI?
The simple payback period ignores the time value of money and ignores cash flows after payback. NPV discounts each year's cash flow to present value; the profitability index (PI) measures the present-value return per dollar invested. Viewing all three balances recovery speed, time value and total return.
What if the annual cash flows differ?
This tool assumes fixed annual cash flows. If they vary, use a cumulative method: add each year's cash flow until the running total equals the initial investment — that point is the payback. This cumulative approach handles uneven cash flows.
What is the difference between simple and discounted payback?
Simple payback accumulates raw annual cash flows to payback without discounting; discounted payback first converts each year's cash flow to present value at a discount rate, then accumulates to payback. Discounted cash flows are smaller, so the discounted payback is always longer, but it reflects the time value of money and suits stricter investment decisions.
Can payback be used to compare projects of different sizes?
You can compare 'speed of recovery' but not by itself which project earns more. Two projects both with a 4-year payback — one investing HK$100,000 and one HK$10 million — have wildly different absolute returns. Compare different-sized projects with NPV (absolute value added) and PI or IRR (relative return).
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.