### Definition: What is the Payback Period (Method)?

The **payback period** is the financial or budgeting method that calculates the required day for an investment to produce the cash flow equal to the original investment cost. This is the time base measurement for analyzing the risk it is used by the management.

If the investment in the company takes much time to recoup its original cost then the investment in such type of company is riskier and cashback cannot be used by the company in other operations.

If the payback period is short then the company get its cashback sooner and invest it in other operations.

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