Payback period

Payback measures recovery speed and can help assess liquidity and exposure to distant forecasts. Add the relevant net cash inflows until they equal the initial outlay. For equal annual inflows, initial investment divided by annual inflow gives the period if cash accrues evenly. With uneven inflows, accumulate year by year; a fractional year assumes an appropriate within-year pattern. Payback ignores cash flows after recovery and does not account for the time value of money. A company's maximum acceptable period is a policy judgement, not a direct measure of value creation.