Payback period
Payback period is the number of years it takes a firm to recover its project investment. Payback does not capture a project's entire cash flow stream and is thus not the preferred evaluation method. Note, however, that the payback does measure a project's liquidity, so many firms use it as a risk measure.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Payback period. The number of years it takes a firm to recover its project investment. Payback does not capture a project's entire cash flow stream and is thus not the preferred evaluation method. Note, however, that the payback does measure a project's liquidity, so many firms use it as a risk measure.
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Payback period. The length of time required for an investment's cash flows to cover its cost.
According to Managing Quality by Foster (6th edition),
- Payback period. The amount of time required to recoup an investment. Usually associated with projects where costs are saved.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
