Payback Period Calculator: Calculate Investment Recovery Time Easily

Key takeaways: 

• Payback period is a period of time which is required to reach the balance point of an investment based on the cash flow. 

• It shows you the time which is taken to recover the project’s cost and risk associated with the investment. 

• The calculator helps you to know the number of years taken to complete the cost of the project. 

Bonus tip: 

Do you know? Shorter payback periods refers to more attractive investments whereas longer payback periods are less desirable. 

The payback period calculator works by dividing the amount of the project by the annual flow of cash. It shows you the time which is taken to recover the cost of the project or an investment. In other words, it is the answer to a simple question, “when will I be able to recover my money back?”.

Think that you have given your friend an amount of ₹60,000. Now, she is paying you ₹5,000 every month to repay the borrowed amount. 

You want to know how much time it will take to repay the whole amount of ₹60,000. For this, you divide the total amount with her monthly payment (₹60,000 divided by ₹5,000). 

Her payback period to recover the amount is 1 year.  

The payback period calculator works in the same way. It helps you to estimate the number of years it will take to recover the cost of an investment or project. 

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What is the Payback Period 

You will invest your money with a clear intention of getting it back with a positive return. The shorter the payback period, the more attractive an investment gets. It is the period which will be taken to recover the cost of an investment. 

The payback period is calculated by using the below formula: 

Payback period = cost of investment divided by the annual cash flow 

The above payback period formula is commonly used by the investors, professionals who are into finance or companies to know their investment returns. 

What is the payback period calculator 

The payback period calculator is an important tool which is used by the investors to estimate the time taken to recover the cost of an investment or project. The calculator consists of a formula box in which you need to enter the basic investment details. The details include the initial investment amount and the average annual cash flow. This will give you an instant result of the number of years it will take to recover the cost. 

For example, Rahul made an investment of ₹1,00,000 with an annual payback of ₹10,000. He used the payback period calculator to estimate the number of years it will take to recover his investment. 

Formula used by the calculator: ₹1,00,000 (initial investment amount) divided by ₹10,000 (annual cash flow) = 10 years. 

His payback period is 10 years. 

Payback period for uneven cash flow 

You can also use the payback period calculator to calculate the payback period for uneven cash flows. 

For example, I am Neha and I made an investment of ₹2,00,000 in a project. I expect ₹70,000 return in the 1st of the project, ₹60,000 in the 2nd year, ₹55,000 in the 3rd year, ₹40,000 in the 4th year, ₹30,000 in the 5th year and ₹25,000 in the 6th year of the project.

Formula used for the uneven cash flows: Years before full recovery + Unrecovered cost at the start of the year / annual cash flow

Now, after year 3, you recovered ₹1,85,000 and after year 4, ₹2,25,000. This means that the investment return became positive during year 4. 

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