Payback Period Calculator
Find out how long an investment takes to pay back its initial cost from its cash flows.
Try an example
4 years
About this calculator
How This Payback Period Calculator Works
Enter an initial investment and the annual cash flow it generates, and the calculator returns how long it takes for the cash flows to fully recover the initial cost.
Worked Example
A $20,000 investment generating $5,000 per year in cash flow pays back in 4 years.
The Formula
Payback period = Initial investment ÷ Annual cash flow. This calculator assumes even, constant cash flow each year; for uneven cash flows, payback period is instead found by subtracting each year's cash flow from the remaining balance until it reaches zero.
What Payback Period Doesn't Account For
This is a simple, intuitive metric, but it ignores the time value of money (a dollar recovered in year 1 is worth more than a dollar recovered in year 4) and it ignores everything that happens after payback — two investments with the same payback period can have very different total returns over their full lifespan. It's best used as a quick risk/liquidity screen alongside other measures, not as the sole basis for a decision. See the Present Value Calculator for a way to account for the time value of money.
Worked example
A $20,000 investment generating $5,000 a year pays for itself in 20,000 ÷ 5,000 = 4 years.
Frequently asked questions
Does this account for the time value of money?
No — this is the simple payback period, which treats each year's cash flow equally. A discounted payback period would weight later cash flows less, but requires an assumed discount rate.
What counts as a good payback period?
It depends entirely on the type of investment and industry — a faster payback is generally lower-risk, but there's no universal threshold.
Does this assume the cash flow is the same every year?
Yes — for cash flows that vary year to year, you'd need to add them up cumulatively until they cover the initial investment instead.