ACCOUNTING TERMS - ACCOUNTING DICTIONARY - ACCOUNTING GLOSSARY
From the web's #1 provider of financial analysis / ratio analysis
PAYBACK PERIOD Definition
PAYBACK PERIOD, in capital budgeting, is the length of time needed to recoup the cost of CAPITAL INVESTMENT. The payback period is the ratio of the initial investment (cash outlay, regardless of the source of the cash) to the annual cash inflows for the recovery period. The major shortcoming for the payback period method is that it does not take into account cash flows after the payback period and is therefore not a measure of the profitability of an investment project. For this reason, analysts generally prefer the DISCOUNTED CASH FLOW methods of capital budgeting; primarily, the INTERNAL RATE OF RETURN and the NET PRESENT VALUE methods.
Learn new Accounting Terms
CARTAGE/CARRIAGE OUTWARDS Occurs when a business pays for sold goods to be delivered to its customers premises.
ADMINISTRATIVE/ADMINISTRATION COST see INDIRECT COST.