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How to calculate Payback period

The Payback period formula, with plain worked examples you can check yourself.

Payback period = I ÷ CF

Worked examples

I = 40000 · CF = 5000Payback period = 8
I = 24000 · CF = 4000Payback period = 6
I = 12000 · CF = 4000Payback period = 3

How to use it

  1. Write down the values for each letter in the formula.
  2. Do the brackets first, then divide or multiply.
  3. Check the units before you compare results.
  4. Compare the answer with last period or with a competitor to see if it is good or bad.

This formula belongs to Investing & Returns.

Related terms

DividendBondHedgingArbitrageLeverageAsset allocation

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