# Payback Period

*Corporate Finance & M&A — Finicade finance glossary*

The payback period is how long a project takes to return its initial investment. It's theoretically poor — it ignores the time value of money and everything that happens after payback — and it survives everywhere because it's intuitive and proxies for risk. Used as a screen alongside NPV it's harmless; used alone it systematically rejects long-dated projects that create the most value.

**Formula:** `Payback period = Initial investment ÷ Annual cash inflow`

**Also known as:** payback, discounted payback

**Related terms:** [NPV (Net Present Value)](https://finicade.com/glossary/npv), [IRR (Internal Rate of Return)](https://finicade.com/glossary/irr), [Capital Budgeting](https://finicade.com/glossary/capital-budgeting), [Profitability Index](https://finicade.com/glossary/profitability-index), [Hurdle Rate](https://finicade.com/glossary/hurdle-rate)

**Taught in:** Capital Quarters — IRR & Payback

Source: https://finicade.com/glossary/payback-period