Payback period calculator
Measure the number of periods required for future cash flows to recover the initial investment and compare simple with discounted payback.
This choice applies to every calculator; amounts are not converted.
Payback period
Enter the initial investment, future cash flows and a rate to compare simple and discounted recovery.
One amount per line, in period order.
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How does this tool work?
Payback period measures how long cumulative cash flows take to offset the initial investment. Discounted payback also reflects the time value of money.
The calculation accumulates cash flows period by period until their total offsets the initial investment. When recovery occurs during a period, the tool estimates the required fraction by assuming that period’s cash flow is earned evenly. Discounted payback first discounts every cash flow using the selected rate and then performs the same accumulation. It is therefore usually longer than simple payback. If the entered flows never recover the committed capital during the analysed horizon, the result remains marked as not recovered.
How to use this tool
Enter the investment
Provide the amount committed initially.
Add cash flows
Enter inflows or outflows by period.
Compare periods
Review simple and discounted payback.
Good to know
What payback does not tell you
Payback ignores everything after the break-even point: a project recovered in 2 years that then stops can be worth less than one recovered in 3 years that pays for 10. Use it as a risk indicator, not as the only criterion.
Why discounted payback is longer
Once discounted, each future flow is worth less than today, so more periods are needed to cover the investment. If the discounted balance is still negative in the last period, the project creates no value at the chosen rate.
Payback period formulas
Cash flows are added period by period until they cover the initial investment, then the fraction of the period in which recovery happens is estimated.
Simple payback
Simple payback = (k − 1) + (Initial investment − cumulative cash flows up to period k − 1) ÷ cash flow of period k
k is the first period in which cumulative cash flows reach the initial investment.
Discounted cash flow
Discounted cash flow of period t = Cash flow of period t ÷ (1 + Discount rate ÷ 100)^t
Discounted payback applies the same rule to discounted cash flows.
- P
- Payback, in periods
- I
- Initial investment
- F_t
- Cash flow of period t
- k
- Period in which the investment is recovered
- r
- Discount rate (%)
The fractional period assumes the cash flow arrives evenly during the period.
Use cases
Measure liquidity
Estimate how many periods are required before cumulative cash flows repay the initial capital.
Compare projects
Compare recovery periods across projects built with consistent time periods and cash-flow assumptions.
Test discounting
Measure the gap between simple and discounted payback when the time value of money is included.
Examples
Payback of a €10,000 project
After 2 periods, €7,000 is recovered; the remaining €3,000 is 0.6 of the third flow, hence 2.6 periods. Discounted at 8%, it takes 2.96 periods.
Input
Initial investment: €10,000; Future cash flows: €3,000, €4,000, €5,000; Discount rate: 8%Result
Simple payback: 2.6 periods; Discounted payback: 2.96 periods; Simple ending balance: €2,000; Discounted ending balance: €176.29Tips and best practices
- A short payback does not guarantee strong profitability.
- Payback ignores cash flows after recovery.
- Use NPV and IRR alongside payback for a fuller analysis.
Sources and references
Frequently asked questions
What is discounted payback?
It discounts each cash flow before measuring when the investment is recovered, so the time value of money is included.
Why can the result say not recovered?
The entered cash flows do not offset the initial investment within the analysed period even after they are accumulated.
How is the fractional period calculated?
The tool assumes the recovery-period cash flow is earned evenly through that period and estimates the fraction required.
Does a short payback period guarantee profitability?
No. Payback ignores cash flows after recovery and, in its simple form, the time value of money.
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