Calculate how long it takes to recover an initial investment from cash flows. Simple payback period is the most widely used metric for capital budgeting decisions.
What the investment costs, and what it returns each year
The outlay and the annual return
$
Upfront cost of the investment (equipment, project, marketing campaign).
$
Annual net cash inflow generated by the investment.
Payback Period
3.33
Years until cumulative cash flows equal the initial investment.
Formula verified 12 September 2026
Payback Period (Months)
40.0
Months until the investment breaks even.
Year 1 ROI
30.0%
First-year return on investment (cash flow ÷ investment).
5-Year Total ROI
50.0%
Cumulative return across the full 5 years (not per year). 50% over 5 years is roughly 10%/yr simple, or about 8.4%/yr compounded — not 50% a year.
Cumulative net cash flow and total return each year, using the investment and annual cash flow you entered. The investment is recovered in the year cumulative cash flow first turns positive. Same logic as the calculator.
Year
Cumulative cash flow
Net vs investment
Cumulative ROI
1
$15,000
$-35,000
-70%
2
$30,000
$-20,000
-40%
3
$45,000
$-5,000
-10%
4
$60,000
$10,000
20%
5
$75,000
$25,000
50%
7
$105,000
$55,000
110%
10
$150,000
$100,000
200%
Estimates only — not financial, tax, or professional advice.
100% private — every number you enter is calculated in your browser and never sent to our servers.
What it calculates: Payback Period, Payback Period (Months), Year 1 ROI, 5-Year Total ROI.
Updated 5 June 2026 · Transparent assumptions
$50,000 returning $15,000 a year is repaid in three years and four months
Payback divides the outlay by the annual cash flow: $50,000 over $15,000 is 3.33 years, or 40 months. It answers exactly one question — how long your capital is exposed before it comes back — and it answers it in a unit anyone can act on.
That is also its entire scope. After month 40 the investment has returned its cost and nothing more; the first-year ROI of 30% and the five-year figure of 50% shown alongside are what turn a repayment date into a return. Payback is a risk measure, not a profitability measure, and treating it as the latter is how genuinely good long-lived projects get rejected.
A project that pays back in three years and stops beats one that pays back in four and runs fifteen — on this measure alone
Payback ignores everything after the payback date. A machine repaying $50,000 in 3.3 years and then producing for another fifteen is indistinguishable, on this measure, from one that repays in 3.3 years and fails. Ranking projects purely by payback systematically favours short-lived ones.
It also ignores the time value of money entirely. A dollar in year three counts the same as a dollar today, which understates the true payback period. Discounted payback fixes that by discounting each year\u2019s cash flow first, and at a 10% cost of capital this project\u2019s discounted payback is closer to 4.3 years than 3.33. Use payback to check exposure, and net present value to decide.
Uncertainty, obsolescence and liquidity all make time-to-recovery the right question
There are situations where payback is the correct primary test. When technology may be obsolete in four years, a five-year payback is a real risk regardless of what the later cash flows would have been. When a business is cash-constrained, capital returning sooner can be redeployed, and that option has value no discounted measure captures well.
Political or regulatory uncertainty works the same way: a project in an unstable environment is worth judging on how quickly it becomes self-financing. Many companies therefore apply a payback ceiling as a screen — nothing over three years, say — and then rank whatever passes by NPV. That sequencing uses each measure for what it is good at.
Uneven cash flows need the year-by-year method, not a divide
The formula here assumes the same amount arrives every year. Most real investments ramp: less in year one while capacity fills, more later. With uneven flows the correct method is cumulative — add each year\u2019s cash until the running total reaches the outlay, then interpolate within the year where it crosses.
The difference is not academic. A project returning $5,000, $10,000, $20,000 and $25,000 recovers $50,000 partway through year four, not at 3.33 years, even though its four-year total is higher than the even case. Averaging uneven flows before dividing will always understate how long the capital is actually at risk.
Pre-tax cash, no financing cost, and no salvage value
Cash flow here should be incremental and after tax to be meaningful, and it should be cash rather than accounting profit — depreciation is a non-cash charge and does not delay payback. Financing costs are excluded, which is consistent with judging the project separately from how it is funded.
Any salvage or resale value at the end of the asset\u2019s life is outside the calculation, as is working capital tied up to support the project and released at the end. For a capital purchase of any size, run payback for exposure and then a full discounted cash flow before committing.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Documented that the figure is undiscounted, and tested that payback in months is exactly twelve times the figure in years.
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