See how many years it takes for an investment's cash flows to cover what it cost, and how much longer it takes once you allow for the time value of money.
Estimates for planning, not financial, tax or legal advice. Figures use US rules unless the page says otherwise.
How payback is calculated
With the same cash flow every year, it's one division:
Payback = initial cost ÷ yearly cash flow
With different cash flows, add them up year by year until the total covers the cost. The fraction of the last year assumes the money arrives evenly through that year:
Payback = years before recovery + amount still owed at the start of that year ÷ that year's cash flow
Discounted payback does the same with each cash flow first discounted to today: CFₜ ÷ (1 + rate)ᵗ. It's always longer than the simple payback when the rate is above zero.
Worked example
A $10,000 machine saves $3,000, $4,000, $5,000 and $2,000 in its first four years. After two years you've recovered $7,000, with $3,000 to go. Year 3 brings $5,000, so you need 3,000 ÷ 5,000 = 0.6 of it: payback is 2.6 years. Discounted at 10%, the cash flows are worth $2,727.27, $3,305.79, $3,756.57 and $1,366.03 today, and payback stretches to 3.15 years.
Limitations
- Everything after payback. A project that pays back in 3 years and then stops can look better than one that pays back in 4 years and earns for 20 more. Check the NPV and IRR too.
- Simple payback ignores the time value of money. Use the discounted payback for anything longer than a year or two.
- Calcist reports the first time the running total turns positive. If later cash flows are negative (like a major repair) and pull it back below zero, the result warns you and says whether the cost is recovered again.
Sources
How we checked this
Before every update, this calculator is run in a real browser with these known answers, and it must match all of them:
- $10,000 cost, $2,500 a year: 4 years ✓
- Same discounted at 10%: 5.37 years ✓
- $10,000 cost, then 3,000, 4,000, 5,000, 2,000: 2.6 years ✓
- …and 3.15 years discounted at 10% ✓
- Running total turns negative again: warning ✓
- …and the time reads 10 months, not 0 years ✓
- Cash flows that never cover the cost: not paid back ✓
Last checked October 26, 2026. Spotted something wrong? The math is done in your browser with the formula shown on this page, so you can check any result by hand.
Questions people ask
How do I calculate the payback period?
Divide the cost by the yearly cash flow if it's the same every year: $10,000 ÷ $2,500 = 4 years. If it varies, add up the cash flows until they cover the cost.
What is the discounted payback period?
The time until the present value of the cash flows covers the cost. It accounts for money later being worth less than money now.
What is a good payback period?
Shorter is less risky. Many businesses set a cutoff, like 3 years for equipment, but the right one depends on how long the investment lasts.
How do I use this for solar panels or energy upgrades?
Enter the cost after rebates and tax credits, and the yearly savings on energy bills as the cash flow. Use a small discount rate to allow for the time value of money.