Payback period
The payback period measures how long a project or investment takes to repay any initial outlay.
The payback periodmeasures how long a project or investment takes to repay any initial outlay. For example, if you spend £1,000 on shares, then receive a dividend of £200 at the end of every year, the payback period is five years.
Payback is useful because it focuses on cash flows a vital consideration in any investing decision. But it's also flawed. It ignores that £200 received in one year is worth more than £200 received after three years.
Discounted payback tries to resolve this (usually lengthening the payback period). Even then critics say the method takes no account of overall returns. In short, payback doesn't really tell you whether you should invest or not. For that, you need other measures, such as return on capital.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Average earnings by region – how does your income compare?
There are significant regional differences when it comes to how much the average worker earns. We explore the data and reveal where in the UK average earnings are highest.
-
St James’s Place confirms new fees – what it means for customers
The UK’s largest wealth manager is replacing its “opaque” and “complex” pricing structure. We explain the new charges, and when they will kick in