PAYBACK PERIOD Definition

Bookmark and Share

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

RECOURSE NOTE is a note where the default may result in loss of collateral and also personal suit and judgment. Most notes are recourse notes.

GUARANTEE see WARRANTY.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.