Glossary · P
Payback Period
Time needed to recover an investment’s initial cost
What it means
The payback period is the time it takes for cumulative net cash inflows to recover an initial investment. Simple payback does not discount future cash flows or include benefits after the payback point. Discounted payback accounts for the time value of money.
What it means for a business
For illustration, a project costing PLN 500,000 with steady net savings of PLN 200,000 a year has a simple payback of 2.5 years. The calculation assumes those savings materialise as planned. NPV and sensitivity analysis give a fuller view of the investment.