Payback Period 

The Payback Period is a capital budgeting metric that calculates the time required for an investment or project to generate cash flows sufficient to recover its initial cost. It measures how quickly a business can recoup its expenditure, providing a simple indicator of risk and liquidity. 

Formula: 

 Payback Period = Initial Investment ÷ Annual Cash Inflows 

For uneven cash flows, cumulative cash inflows are tracked year by year until the initial investment is fully recovered. 

While the payback period does not account for profitability beyond the break-even point or the time value of money, it remains a popular tool for assessing short-term investment risk and liquidity.