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top   »  economics   »  finance   »  financial analysis   »  payback period

What is Payback Period?

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Payback period is the length of time that it takes an investment to reach break-even. This is calculated as the period for which future cash flows discounted to net present value equal cost. It is common to represent payback period in months or years. Payback period can be used to compare strategies and investments based on projected returns.

Example

A company develops a new product that costs $4 million dollars to develop and launch. The product earns $1 million dollars a month in net revenue, resulting in a payback period of 4 months.
Overview: Payback Period
Type
Financial Management
Definition
The amount of time for the cash flows generated by an investment to equal its cost. Both cost and cash flows are typically discounted to present value for comparison.
As Known As
Payback time
Related Concepts
Net Present Value
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