Analyzing the investment with the Payback Period

jarret1846 · Apprentice Joined: 09 Apr 2010 Posts: 1

Hello there everyone. Couple of days ago, I read an article about analyzing the investment with the Payback Period. It seemed pretty easy to me, so I became interested in the matter. Can you tell me what exactly Payback Period is and whether is it any good for making investment decisions? Thank you.

kimbell1964 · Apprentice Joined: 04 Feb 2009 Posts: 1

Hello there. I will be glad to give you some information about this. Payback Period is measure which shows after which time period investment will pay back. It is very convenient measure for analyzing the investment because it is simple to use and it helps a lot when making investment decision. But, in reality investors use couple of other indicators to see where to invest. So, allthough good, Payback Perio is not the perfect measure.

chrissie1605 · Apprentice Joined: 09 Aug 2008 Posts: 1

Hello to you too. As it was said above, Payback Period referrs to how much time is needed for investment to pay back. If you invest a hundred dollars in something, and you get those hundred dollars after one year, Payback Period in that case would be one year. Investors always prefer shorter average lenth of Payback Period when deciding where to invest, so this measure can have big impact on investor’s decision.

daveen · Apprentice Joined: 05 Jul 2011 Posts: 1

Hello hello. It is true that this measure is very convenient for investors because it is easy to understand. However, it has some bad sides as well. It is very simple, which investing is not. Payback Period does not take into account time value of money, risk and other relevant facts. So, Payback Period should not be used without some other analytical tools. That’s what I wanted to add. Bye!