Payback period - formula, calculation example. Discounted payback period. Calculation of the payback period of an investment project: main goals

The payback period formula is one of the most important indicators when evaluating investments. The term for the return of investments for investors acts as a fundamental one.

The indicator makes it possible to determine how profitable and liquid investments are. For a competent calculation, it is important to understand what the indicator is.

One of the most important coefficients in determining the feasibility of investments is the payback period of an investment project: its formula shows how long the profit on the project will be greater than all the costs of it. The formula calculates the return period, then the investor compares the resulting figure with his acceptable and economically feasible period.

The payback period formula (see) is appropriate and necessary to use if an investor chooses from several almost identical projects. Here it is better to choose a project that has the shortest return on investment.

We must not forget that the payback period should be less than the time period during which the lender used the loan.

The payback period of an investment project is a formula showing the number of time periods after which the investor fully returns the invested money.

Important! In order for the formula: the payback period of an investment project to be used adequately, it is necessary to understand the costs of improving production, reconstructing capacities, and the company's main assets as expenses. Because of this, the return and effect of investments cannot be momentary.

We arm ourselves with a calculator

Let's consider the return on investment in more detail: the formula assumes that the following indicators are known:

project costs. The amount of costs includes all investments that have been made since the start of the project;
net income for the year. It is understood as the profit received in the process of working on the project, minus all costs, including taxes;
depreciation for an annual period. This is money spent on improving the project, methods of its implementation (modernization of production, improvement of equipment, etc.);
time over which costs are incurred. This includes investment.

The formula for the payback period of investment projects, taking into account discounting, will be applicable if it is known:

the sum of all revenue for the analyzed period of time;
discount rate;
project discount period;
amount of initial investment.

The payback period formula takes into account the way in which the project will generate profits. In the event that the cash flow is uniform throughout the analyzed period, the formula for the payback period of investments will be as follows: T \u003d I / D

T is the payback period of investments;
I - investments;
D is the total income.

Important! The formula "payback period of investment" implies that the profit on the project is obtained by adding the net profit and the amount of accrued depreciation.

Whether the project is profitable or not is calculated as follows:

If the value obtained is less than the one specified by the contributor, the project is approved and implemented.
If the received period is higher, the project is rejected.

As in reality

Let us give an example of calculations in which the formula is used: the payback period of an investment project. Suppose 120,000 rubles are invested in the project.

Profit from the project:

We check the payback: 25,00 + 45,000 = 70,000 rubles.

The amount received is less than the invested funds, therefore, the project does not pay off in two months.

70,000 + 53,000 = 123,000 rubles

Profit for three months is higher than the amount of investment, that is, the project pays off in 3 months.

Advantages and disadvantages

What are the advantages of this method:

simplicity of calculations;
visibility;
a chance to split the investment, taking into account the value set by the investor.

Important! Formula: the payback period of an investment project provides a good opportunity to determine the risks for it, because an inverse relationship is visible: with a decrease in the payback period, the risks of the project also decrease. With an increase in the payback period of investments, the risk also increases, because investments can become irretrievable.

Minuses:

the inaccuracy of the results obtained, because in this case the time factor is not taken into account;
in fact, the profit received after the “passage” of the payback period does not have any effect on its indicator.

Other calculation methods

By investing, the investor is aware that the profit from the project will not "go" immediately, but only after a certain time. That is, it is important to understand what profit he will receive in the future, taking into account various economic factors. Therefore, dynamic methods come to the aid of static calculation methods (described above). They allow you to discount the cash flow, taking into account various factors that directly affect the implementation of the project.

The importance of applying complex calculations is related to the discrepancy between the price of money at the beginning and end of the project.

The payback period of investments - the formula of which is written below, implies the adoption of such an indicator as a time factor when calculating. That is, this is the calculation of NPV: T \u003d IC / FV

Where:

T - payback;
IC - project investments;
FV is the estimated profit for the project.

It takes into account the cost of investment and the expected profit in the future. The calculation of this value requires the use of a discount rate, which is determined based on various project risks:

inflation indicators;
country risks;
lost profit, etc.

All indicators are determined as a percentage, then added up.

flow heterogeneity

Profit in the process of project implementation may vary from year to year.

In this case, the return on investment - the formula of which is discussed above, is determined as follows:

We determine the number of time periods (one month, or one year, that is, equal), when the amount of income becomes approximately equal to the amount of invested funds. The amount is determined on an accrual basis.
We determine the balance: we reduce the amount of investment by the amount of profit accumulated under the project.
The size of the uncovered balance is divided by the amount of receipts of the next time period (month, year).

It is important in this case to use the already mentioned discount rate.

Important! The discount rate is calculated by adding the remaining risks of the project to the risk-free rate of return.

In custody

The payback period of investments - the formula of which is discussed in this article, shows how quickly the investor has the opportunity to return his investments and start making a profit. The choice rests on the option with the shortest term.

Each of these calculation methods has its drawbacks and positive features. It is important to remember that payback comparisons can only be made if the projects are the same.

Happy investment!

The life cycle of an investment project (IP) consists of five main stages:

development of an investment project and construction (creation) of an object;
mastering technologies and reaching full capacity;
normal operation and return on investment;
operating time of additional profit after a one-time payback;
liquidation and (or) sale of assets.

The criteria for the temporal effectiveness of IP are the minimum duration of the first three stages and the maximum duration of the fourth stage. Widely used 20-50 years ago, the indicator of static payback period(CO) was not related to the time factor: it is indifferent to when the return on investment begins.

When using it, the first two stages of the life cycle of an investment project fell out of the scope of management and the impact of efficiency calculations, as a result of which there was a risk of delaying them and freezing investments. It also did not show the return on investment, since it was not related to either the life of fixed assets or their depreciation rate.

This indicator made it possible to determine the effect of using capital investments as part of the accumulated funds. The return of investments in reality is already carried out in the order of simple reproduction through depreciation. That is, a one-time return of capitalized investment costs (IC) occurs “automatically” even if the actual life of fixed assets is not less than the duration of the billing period (RP) even with zero profit. In the cash flow methodology, the payback rule is adopted, according to which the payback of IP occurs due to the accumulation of net income (amortization plus profit). However, when calculating this payback period indicator, it should be understood that “simple”, i.e. a single return in modern conditions is insufficient for expanded reproduction, and its fact does not mean that a sufficiently high efficiency of investment costs is ensured.

When determining payback through cash flow (net income), the dynamic payback period does not show the real return on investment, since part of the accumulated net income, as a rule, is spent on current consumption. Therefore, it would be wrong to imagine that by the end of the payback period, the return on investment becomes a fact.

Indeed, the payback rule has rather conventionally established that “payback” means precisely the absolute equality of the income (effect) received to the investments spent or the increase in the value of the accumulated (calculated on a cumulative total) net income from minus to plus.

Often in literature payback period, payback period And return on investment period are considered synonyms and are also defined uniformly. In various sources, there are two main names for a temporary dynamic performance indicator: payback period (term of recoupment, recoupment period) and return period (payback period, recovery period). With a careful approach, this is one and the same indicator, meanwhile, the concepts of payback and return FROM may not be completely identical (although in English this is actually the case).

In the process of return of an investment project, several processes can be discerned.

The first - the one that corresponds to the payback rule - is the achievement of the value of the income received by the value of the investments made. This assumes that income is gross net income, but the Investment Performance Guidelines state that “It is not correct to calculate payback based on net income after tax.”

The second process is the return of invested funds - the possibility of a real withdrawal by the investor of the funds invested in the project back. Therefore, for a deeper analysis, it is quite possible to use several indicators of time efficiency. These indicators will differ from each other depending on how they take into account the following points:

1. What costs should be included in the volume of investments, the payback of which is determined? Often, only the payback of the initial investment is determined, although it is more correct to take into account additional investments during the operation period. In addition, sometimes petty expenses related to deferred expenses are not classified as non-recurring (i.e. investments), but are added to current operating expenses. Should we take into account the VAT paid, which is not included in the cost of non-current assets, since it has its own return mechanism - offset, generally faster than that of capitalized IZs? The real cash flow largely removes these issues, but at the stage of business planning, the complex structure of IZ greatly complicates the forecasting of this flow. In addition, their solution is important in the analysis of the dependence of payback on the structure of IZ. When calculating the static CO, the amount of losses before the start of the project development was added to the CI amount, but when using the cash flow method, the planned losses are taken into account automatically.

2. At what expense and how is the payback:

in accordance with the payback rule at the expense of the entire amount of net income (BH);
the part of the black hole that remains for accumulation - the real amount that can be withdrawn from the project;
only through depreciation?

In other words, what is "payback" as such? At the same time, the option of early closure (sale) of IP to accelerate payback and return on investment is not considered or remains “in reserve”. Withdrawal of investment costs is possible only in the form of free funds coming into the same funds (hands) from which they were financed. Considering this, what point should be recognized as the moment of actual IP payback, i.e. effective?

Here we mean whether it will be a one-time return point, provided that the payback is determined by the filling of own sources of financing (depreciation fund and accumulation fund), or a two-fold or more return point, if the payback is determined by net present value (NPV), which is used not only for accumulation, but also for consumption. This difference also takes into account the structure of IZ. First of all, the fact that part of the CI, aimed at creating stocks (working capital), can finally be returned (withdrawn from the project) only upon its completion: when the remnants of finished products and other stocks are sold (although it is not so important for the investor what consists of the returned amount). Meanwhile, in projects that begin with capital construction (factory, workshop) in an economic way, payback in the form of accumulation of the depreciation fund begins even before the facility is put into operation and the sale of products begins, along with depreciation on construction equipment. The role of the circulation of working capital (ie part of the total investment) in the payback process has yet to be clarified.

3. How is the starting point (base moment) of the payback period determined?- left on the timeline (see figure #1)? In this regard, most methods and researchers suffer carelessness, as if everything here has long been unambiguous. It is taken as “the moment specified in the task for calculating the efficiency”, and the beginning of the RP (without specifying whether this is the beginning or the end of the zero step), and “the beginning of the development of investments” (what this point is, you can answer differently), and even the beginning of "working out" (as in the concept of static CO). This can partly be explained by the fact that "period" is translated from English both as "cycle, circle" and as "point". That is, it is more important for someone to determine exactly the payback point, and not the payback period itself. But without finding the duration of the period, it is impossible to compare different projects (options) in terms of the speed (time) of payback.

Figure 1. Life cycle and payback rates of an investment project

The time in the billing period is counted from a fixed moment, taken as the base period. This is most often the beginning of the zero step, but it can also be its end. In the latter case, it is more correct to discount cash flows, since they are given at the end of each step. The most accurate approach here is that the left point should be determined by calculation, taking into account the distribution of investments in the first stages of the IP.

According to the payback rule, the right point of the payback period (roughly) is at the step (year) t ", which is found by solving the transcendental equation (1):

Analysis of the data given in Table No. 1 shows that the right point of SD lies within the tenth step, when the value of NPDD (the last column) changes sign from “-” to “+”.

Table 1. Calculation of IP efficiency (Nd = 15%)

Step number	Cash flow indicators
Step number	Kt	Pt	at	Kt at	Pt at	RHt	NCHD	NFDD
1	50	0	1	50		-50	-50	-50
2	880	0	0,87	765		-880	-930	-815,2
3	121	0	0,756	91,5		-121	-1051	-906,7
4	0	250	0,658	0	164,4	250	-801	-742,3
5	0	350	0,572	0	200,1	350	-451	-542,2
6	0	350	0,497	0	174	350	-101	-368,2
7	0	350	0,432	0	151,3	350	249	-216,9
8	0	350	0,376	0	131,6	350	599	-85,3
9	0	200	0,327	0	65,4	200	799	-19,9
10	-200	100	0,284	-56,9	28,4	300	1099	65,3
Total	851	1950		849,9	915,2	1099
Index of return on initial investment		1,07
Total investment return index		1,08

Note:
NCHD - nominal net income on an accrual basis;
NCDD - discounted net income on an accrual basis.

The first one can be called the full payback period, since it additionally takes into account the time of diversion of funds in construction (if any), the freezing period of IZ before the start of return, and the “working off” period. The left extreme point on the time scale can be fixed in two ways, either by the base moment or by some “central” moment of FROM.

The second indicator is CO, the left extreme point of which is the beginning of the return of the project (or the moment of the last investment).

The first and second indicators are calculated in typical investment projects and equity and are best suited to the case when the investor and the implementer are the same person.

A typical investment project is a project in which typical (most frequent) cash flows occur: first there is a period of investment, then a period of return without investment costs, and at the end, the liquidation value of assets is taken into account. That is, in typical investment projects, the sequence and lag between investments and returns are mandatory.

For the third indicator (let's call it the return period - RP), the left point is one of the ones discussed above (here it is not so important), and the right one - the return point (TV) tv is determined by equality (2):

The return period is determined by the period for which an amount of free cash equal to the initial CI will be received, and these funds could be used for further investments in this project, as well as in any others. In terms of its magnitude, PV is always greater than CO, since the right side of formula (1) is always greater than the right side of formula (2). The sum SUM(At + Pcht) is the capital share of NPV (capitalized income).

The return period indicator characterizes the expediency of IP from the standpoint of the timely and full return of the advanced funds, taking into account the interest rates on the loan. The real value of IP is always of interest to a third-party investor, as well as a creditor bank that decides on lending to the implementation of this project, or the enterprise itself, which finances it from its own funds and plans its further investments. (In practice, banks do not calculate PV, as they do not yet know the theory and methodology for calculating it.) If the project is 100% financed by a loan, then the PV value will indicate the minimum loan term required to repay it. Thus, in the latter case, the calculation of the return period is a possible way to solve the problem of determining the financial feasibility of the project. The concept of the return on investment period, in contrast to the concept of a one-time CO, takes into account the time costs, income and expenses that occur both before and after the payback point, is based on the actual life of fixed assets.

Otherwise, the indicators of CO and PV have much in common. Both of them are dynamic indicators, despite the fact that they can be both nominal and discounted.

The use of dynamic RM makes it possible, as is known, to cover in the calculation the main stages of the life cycle of an investment project, including the design, creation, implementation and development of an object, as well as its operation and receiving returns until a single return (or payback). Accordingly, CO can be represented as the sum of several terms. An analysis of the actual structure of CO allows revealing the reasons for its deviation from the calculated value. When calculating SO and PV, it is necessary to take into account the lag between the implementation of capital investments and the beginning of obtaining the effect.

The calculation of CO and PV should begin with the calculation of the central moment of investment. It is necessary to find the left point of the RP, which characterizes the central moment of investment of funds (the “center of gravity” of this process). If we take for it the moment of the first investment, then in some cases a strong lengthening of the period will be obtained.

For example, at the initial stage, a deposit (the first part of the investment) was paid for participation in the tender (about 1% of the order value). The tender was won, but its results were approved with some delay. The implementation of the investment project and the main purchases (investments) fell not even on the second - third, but on the fourth and fifth steps. Then the payback period, if we start counting it from the first investment, in this case will increase by several steps (years) of forced waiting from the first investment to their main part.

To calculate the discounted CO, two assumptions must be made. First, the investments of each step refer to its middle (reduced to the middle). The second is that the resulting effect (NPV) is distributed evenly within the RP step at which the value of the increased NPV changes sign from “-” to “+”.

These assumptions contradict the original assumption in the calculation of NPV that discounting brings all calculated values to the end of the step and will somewhat affect the accuracy of the SD calculation. When calculating the undiscounted CO, these assumptions are the most acceptable. Generally speaking, in all cases it is advisable to carry out discounting by the middle of the step, in this case the smallest error will be ensured.

So, for an accurate calculation, it is necessary to bring all point investments in the project to one moment, which can be called a central or dynamic investment center (CI). CI is understood as some point within the investment phase, which is a conditional point of the time scale, in which all the moments of investment are summarized (recall, it is conditionally assumed that all investments of a given step refer to its middle). Accordingly, the weight coefficient for the first step is 0.5, for the second - 1.5, for the third - 2.5, and so on.

If more precise calculations are required, the point of investment can be determined taking into account the quarterly or monthly distribution of IZ during the period of the object's creation.

In those cases when the beginning of the zero step is taken as the base moment, the central moment (point) of CI investment is determined by formula (3):

Consider an example (table No. 2) of determining the dynamic center of investment CI = (66 * 0.5 + 58.8 * 1.5) / (66 + 60) = 0.97 (step, year).

Table 2. Calculation table for determining the indicators of CO and PV (all indicators are discounted), million rubles.

T	Operating cash flows	Cash inflows from financing activities	Investment costs	Operating costs	NPV	Capitalized NPV	Accumulated NPV	CNDD balance
1	0		66		-66		-66	-66
2	0		58,8		-58,8		-124,8	-124,8
3	113,636	20		77,273	56,363	36,64	-68,435	-88,16
4	104,132	18,182		69,421	52,893	34,38	-15,542	-53,78
5	90,158	15,026		60,856	44,328	28,81	28,784	-24,97
6	78,984	6,83		48,494	37,32	24,97	66,104	0
Total	386,91	60,038	124,8	256,044	66,104	124,8

There are two practical methods for further calculation of SD: using numerical mathematical methods and using a special simple algorithm when calculating the integral effect (NPV). When determining the NPV (Table 2), the ordinal step (year) t of the calculation period is identified algorithmically, at which the value of the accumulated NPV changes sign from “-” to “+”. Its number will show the payback point rounded up t". In fact, it lies inside this step. From it to the end of the step there is a segment equal to NPDDt" / NDDt (fraction of a step). The exact value of the TO payback point (taking into account the above assumptions) can be found by formula (4):

TO \u003d t "- NCHDDt" / NPVt"

Let us consider in more detail t" = 5 (Table 2), NCHDD = 28.784 million rubles, NPV = 44.328 million rubles.

The exact value of the TO payback point will be 5 - 28.784/44.328 = 4.35. Figure No. 1 shows that the period required to generate NPDD = 28.784 million rubles was 0.65 steps (years).

The location of the return point of the TV (the right point of the return period and the payback point) does not depend on where the left point was taken: at the first investment, at the beginning of the RP, or others.

As a result, the assessment of the payback period (SD) values is determined using formula (5):

CO = TO - QI

The return period (RP) is determined accordingly using formula (6):

PV \u003d TV - QI

In the given example, SD = 4.35 - 0.97 = 3.38 (step, year).

PV \u003d 6 - 0.97 \u003d 5.03 (steps, years). The cusp point coincided by chance with the end of the 6th step.

The double return period ends in the 8th year of the RP.

PV \u003d 8 - (135.674 - 124.8) / 124.8 - 0.97 \u003d 6.93 (years).

Figure #1 shows that the CO period is 2.35 steps, and the unshown CO period is exactly 4 steps.

When analyzing IP and time performance indicators, it should be taken into account that the heterogeneity of various parts of investment costs is accompanied by the risk of their return to varying degrees. Any article of FROM is equally effective in terms of the amount of profit it brings, but only depreciable costs create an amortization fund and reduce the taxable base for income tax. VAT, not included in the initial cost of non-current assets, has a creditable refund mechanism. Investments in working capital growth are also returned with each turnover, and can finally be released (returned) only when the project is liquidated.

Literature:

Guidelines for evaluating the effectiveness of investments. UNIDO, 1978.
Serov V.N. On improving the assessment of the economic efficiency of investments in production capital // Investments in Russia. - 2008. - No. 7.
Chistov L.M. Economics of construction. - SPb., 2000.

Payback period equipment- This is an economic indicator that must be calculated when analyzing and planning economic activities. It characterizes the time during which the money spent on the acquisition of the next means of production will be returned in full due to the use of the unit.

To get started, determine the amount that the company is willing to allocate for the purchase of a new equipment. Include directly in it the cost of acquisition, as well as the costs associated with installation and commissioning. For example, if you plan to acquire an additional conveyor that will redistribute the load, then in the “Capital Investments” parameter, calculate the price of the device, the amount of delivery, the cost of installation and commissioning. However, if all the preparatory activities were carried out by a staff member of the company, and therefore the organization managed to avoid additional costs, then nothing needs to be added in addition to the purchase costs.

Calculate the gross income received from the use equipment. For example, if a loaf of bread is baked in a new oven per month and sold at a price of 20 r per unit of goods, and the cost of raw materials per loaf is 5 r, then the gross profit will be equal to 7 r (7 \u003d (20 r - 5 r ) *). At the same time, the costs of maintaining the salary fund are not taken into account, but if for maintenance equipment additional staff will be hired, then payments to newly hired employees must be taken into account. Tax deductions should be ignored - in any case, they will depend on the final amount of income. Thus, gross income is the difference between the selling price and the cost of production, in trade - the amount of allowances.

Substitute the found indicators into the formula: T \u003d K / VD, where T is the payback period; K - capital investments; VD - gross income. When calculating the payback period, you can take any time interval. If a quarter is selected, then the amount of gross income is also taken from the calculation for 3 calendar months.

Instead of the profitability indicator, you can substitute the amount of savings that will become possible after the introduction of an additional unit equipment, because according to popular wisdom, "Saved means earned."

About the ability to calculate payback
The development of the project, as a rule, ends with the calculation of its payback.
The payback period is the period of time
How to calculate the payback period
Payback is one of the indicators reflecting the efficiency of the company's economic activity.
The essence of the payback period of capital investments
Payback period calculation
To evaluate the effectiveness of an investment project in financial management, various methods and criteria are used.
Calculation of the simple payback period
Calculation of the discounted payback period

It is fundamentally wrong to think that only economists and businessmen should have the ability to calculate payback. Each family invests money in apartments, houses, cars and bank deposits. All this can grow in price after a while and bring benefits to their owners. Therefore, you can talk about the return on investment with friends, and with colleagues, and with neighbors in the landing. And there is nothing surprising if they do not know the phrase "return on investment", because not everyone is given to be economists and businessmen.

- calculator
- pen
- paper

For domestic use, the payback calculation is extremely simple and unpretentious. To calculate the payback, you need to divide the amount of invested funds by the amount of profit received. The resulting value will show the period of time during which the payback will come.

For example, we bought an apartment on the ground floor of a residential building for 3,000,000 rubles. We spent another 600,000 rubles on repairs, bureaucratic procedures and the arrangement of the adjacent territory. After that, having submitted an advertisement, they handed over this premises to the tenant, who will pay monthly utilities and the amount of 40,000 rubles.

Thus, our investments amounted to 3,600,000 rubles. And the monthly profit from the project is 40,000 rubles. For a full return on investment, it will be necessary to rent out our premises for (3,600,000 / 40,000) 90 months, or 7.5 years.

One more example. A friend suggests we do trucking. To do this, you need a GAZelle car, which you will have to purchase. Suppose that the amount of monthly profit from cargo transportation after all the costs of repairs and fuel is expected to be about 40,000 rubles. Let's say we buy a used GAZelle for 300,000 rubles.

Thus, the return on investment will come after (300,000 / 40,000) 7.5 months of work.

In addition, the return on investment can be compared by choosing more profitable opportunities. Let's compare the income from the GAZelle from the previous example with the income from a bank deposit at a rate of 10.5% per annum.

For ease of comparison, let's take the amount of the deposit equal to the cost of the GAZelle, 300,000 rubles. Suppose that, according to the conditions of the bank, interest is paid at the end of the term. Thus, after 1 year, the amount of our investments will increase by (300,000 * 10.5%) 31 rubles. And we will have 331 rubles on hand.

For 12 months of work in cargo transportation, we will receive (40,000 * 12) 480,000 rubles. From a mathematical point of view, this means that in our examples it is more profitable to invest in cargo transportation, and not in a bank.

We hope that now you will make financial decisions with even greater rationality.

access to the Internet
calculator
Notepad and pen
scales (to determine the weight of the cargo)
centimeter tape or tape measure (to determine the size of the load)

Determine the distance between delivery points. If transportation is carried out intercity and by car, then this distance must be multiplied by two, since the return trip is also included in the delivery cost.

Find out the cost of transportation per kilometer. The easiest way to find out is to turn to the Internet or call the company that will transport the goods. You can also use various printed publications or ask friends who recently ordered delivery of goods.

Determine the weight of the load. If it exceeds the permissible norms, then the cost will be slightly higher, since the parcel will be transported in other conditions. For example, on other vehicles that can carry more weight.

Pay attention to the dimensions. For oversized cargo, you will also have to pay extra due to the replacement of transport.

Determine how urgently you need to deliver the package. If this is required to be done as quickly as possible, then it is better to use express delivery. Almost all firms now have the ability to do it. But the shipping cost will increase significantly.

Determine the need for additional services, in the presence of which the payment increases. In different companies, the range of additional services provided varies significantly. This may be packaging, cargo protection, insurance, paperwork by the company itself. Often this situation occurs when transporting bulky and heavy goods.

Calculate the total shipping cost. The distance is multiplied by the cost of one kilometer of transportation, then multiplied by the weight of the parcel and the additional cost for excess weight, oversized cargo or additional services (if any) is added.

Related videos

If for some reason the project is recognized as unpromising, its economic indicators change (for example, the cost of materials decreases). How can you calculate the payback of the project and what is required for this?

calculator, pen, notepad, economic indicators of project implementation

Calculate the payback period of the project, that is, the time interval after which the project begins to make a profit. T \u003d K / P, where

T is the payback period, K is the annual capital investment, P is the project profit. Let's say that in the first year of the project, the enterprise purchased new equipment in the amount of 15 million rubles. In the second year of the project implementation, the enterprise carried out a major overhaul of workshops to improve the work of the department. 2 million rubles were spent on repairs. In the first year, the profit from the project amounted to 5 million rubles, and in the second - 17 million rubles. If the cash flows during the year, quarter or month are not the same, it is worth calculating the payback period for each of the above time intervals. In the first and second years, it will be respectively:

T1 = 15/5 = 3 years

T2 = 2/17 = 0.11 years, or in about a month, the project will pay off with a similar amount of profit.

Calculate a simple rate of return or an indicator that indicates how much of an investment pays off at the expense of profit. RNP \u003d NP / IZ, where

ERR - simple rate of return, NP - net profit, IZ - investment costs.

According to our example, the simple rate of return in the first and second years will be respectively:

PNP1 = 5/15 = 0.33 million rubles,

PNP2 = 17/2 = 8.5 million rubles. In other words, in the second year of the project, it can be argued that the investment paid off, the project is recognized as promising.

Compare the results obtained according to the simple rate of return and payback period. In our example, in the second year of the project, investments begin to work for profit. In about two years and one month, the project will fully pay for itself, which means that it can be argued that the investments in the project were not in vain.

Often these indicators are not enough to calculate the payback of complex projects that are implemented in stages and in different areas (for example, construction and sale of goods). In this case, the indicators are calculated for each specific type of activity and taking into account changes in cash receipts in a separate reporting period.

The payback period is the time interval during which the investments invested in the project will pay off in full. As a rule, this time interval is measured in months or years. But how to find the payback period and what may be required for this?

a table showing the time (e.g. year) and the corresponding capital investment in the project, a calculator, a notepad and a pen

Make a table of investments (investments) and planned income from the project for each year. For example, the enterprise plans to implement the X project, the cost of which is estimated at 50 million rubles. In the first year of implementation, the project required additional investments in the amount of 10 million rubles. In the second, third, fourth and fifth years, it is planned that the project will begin to generate a profit of 5, 20, 30 and 40 million rubles, respectively. Then the final table will look like this:

Time period and Investments and profits

0 - 50 million rubles

1 - 10 million rubles

2 + 5 million rubles

3 + 20 million rubles

4 + 30 million rubles

5 + 40 million rubles

Determine the accumulated discounted flow, that is, the amount of investment that changes according to the planned income. Let's say that at the enterprise project "X" the return on the project or the discount rate is 10%. Calculate the accumulated discounted flow up to the first positive value using the formula:

NDP \u003d B1 + B2 / (1 + SD) + B3 / (1 + SD) + B4 / (1 + SD) + B5 / (1 + SD), where

NDP - accumulated discounted flow, B1-5 - investments for a certain period of time, SD - discount rate.

NDP1 \u003d - 50 - 10 / (1 + 0.1) \u003d - 59.1 million rubles.

Similarly, we calculate NDP2,3,4 and so on until we get a zero or positive value.

EPT2 = - 54.9 million rubles

NDP3 = - 36.7 million rubles

NPT4 = - 9.4 million rubles

NPT5 = 26.9 million rubles

Thus, the investments invested in the project will pay off in full only in the fifth year of the project.

Calculate the exact payback period of the project using the formula:

T \u003d KL + (NS / PN),

Where T is the payback period, CL is the number of years preceding the payback, HC is the unreimbursed cost of the project at the beginning of the payback year, that is, for year 5 (the last negative amount of the NPT), PN is the cash inflow in the first year of payback (40 million rubles).

In our example, T \u003d 4 + (9.4 / 40) \u003d 4.2 years.

In other words, the project will pay for itself in 4 years, 2 months and 12 days.

note

The payback period allows you to determine, even at the development stage, in which cases (with known costs and the amount of profit) the project will be profitable.

The rate of return on invested funds is a key criterion for the attractiveness of an investment project. The payback period allows the investor to compare different business options and choose the most suitable one, corresponding to his financial capabilities.

Remember that the payback period of a project is the length of time from the initial stage (implementation of the project) to the moment when it fully pays off. The payback moment is the time after which the financial flow from the project acquires a positive value and remains so.

The method for calculating the payback period of an investment is to determine the period that will be needed to recover the initial cost of investments. The payback period is a measure of whether or not the initial investment will be recovered over the life of the project.

There are two ways to calculate the payback period. If the cash receipts from the project are the same for all years, then the payback period can be calculated as follows:

PP = I / CF, where:

РР is the payback period of the project,

I is the initial investment in the development of the project,

CF - the average annual cost of cash receipts from the project.

If the cash flow over the years is not the same, then the calculation of the payback period is carried out in several stages. First, find the integer number of periods over which the cumulative proceeds from the project will come closest to, but not exceed, the original investment. Then calculate the uncovered balance - the difference between the amount of investments and the amount of cash receipts received. Then divide the uncovered balance by the amount of cash receipts for the next period.

Please note that these methods have some drawbacks. They ignore the difference in the value of money over time and the existence of cash receipts after the end of the payback period. In this regard, the discounted payback period is calculated, which is understood as the duration of the time period from the initial moment to the payback moment, taking into account discounting.

Remember that discounting is all about determining the present value of the cash flows we will receive in the future. In other words, it is the transfer of the future value of money to the present. In this case, the discount rate is determined on the basis of interest on risk-free investments, on the basis of interest on borrowed capital, according to expert estimates, etc.

The discounted payback period is the most adequate criterion for assessing the attractiveness of an investment project, since it allows you to include some risks in the project, such as a decrease in income, an increase in costs, the emergence of alternative most profitable areas of investment, thereby reducing its nominal efficiency.

One of the important tasks at the design stage of ventilation, air conditioning and heating of a building is the calculation of the heat load. Design capacity is the amount of energy that needs to be delivered to the room (or removed from it) to maintain the required temperature and humidity.

- calculator;
- thermometers;
- initial data.

When calculating the power, it should be taken into account that there are two types of heat load: sensible cooling load (dry or sensible heat) and latent cooling load (latent or damp heat). The value of apparent heat is found according to the indicators of the "dry" thermometer, and the latent - according to the "wet" thermometer. These two quantities are taken into account when calculating the heat load.

The following factors influence the amount of dry heat: the presence of windows and doors in the room, heating, the nature of the lighting, the thickness of the walls, the presence of people in the building, air exchange through cracks and cracks, etc. Damp heat sources: people, equipment installed in the room, and air flow from outside through cracks in the wall.

Knowing the factors that affect the temperature and humidity of the indoor air, analyze them. Thus, the flow of solar energy through the window depends on the time of day and year, external shading devices, as well as on where the window goes. In addition, the influx of solar energy enters through the roof and walls of the building, so the structural features of the building and the material used for its construction significantly affect the rate of heat transfer.

The hourly heat input due to thermal conductivity can be calculated using the formula: qi=U*A*(te-trc), where qi is the energy input due to surface thermal conductivity, U is the total thermal conductivity of the surface, A is the surface area, trc is the design temperature air inside the room, and te is the temperature of the external surface at a certain hour.

To calculate the heat flow through the walls or roof, the following formula is used: qQ= c0qiQ + c1qiQ-1 + c2qiQ-2 + c3qiQ-3 +…+ c23qiQ-23, in which qQ is the hourly heat input, qiQ is the amount of heat, received during the last hour, Qn is the heat input n hours ago, c0, c1, c2, etc. - heat supply time.

The calculation of the heat load allows you to identify the individual components that have the greatest impact on the total load, and, if necessary, adjust the design capacity.

note

Be careful when calculating! Mistakes are not allowed!

The design outdoor temperature is defined as the average temperature of the coldest five-day period.

It characterizes how competently and successfully capital investments are used.

In economic analysis, there are various approaches to determining the payback period. This indicator is used as part of a comparative analysis in determining the most profitable investment option. It should be noted that it is used only in complex analysis; it is not entirely correct to take the payback period as the main parameter of efficiency. Determining the payback period as a priority is possible only if the company is focused on a quick return on investment.

On the other hand, ceteris paribus, preference is given to those projects that have the shortest payback period.

When implementing a project with borrowed funds, it is important that the payback period is shorter than the period of using external borrowings.

The indicator is a priority if the main thing for an investor is the fastest possible return on investment, for example, the choice of ways to financially recover bankrupt enterprises.

The payback period refers to the period during which the capital costs are recovered. This is achieved by generating additional income (for example, by introducing more productive equipment) or savings (for example, by introducing energy-efficient production lines). If we are talking about a country, then compensation occurs at the expense of an increase in national income.

In practice, the payback period is the time period during which the profit of the company, secured by capital investments, will be equal to the amount of investment. It can be different - a month, a year, etc. The main thing is that the payback period does not exceed the standard values. They differ depending on the specific project and industry focus. For example, for the modernization of equipment at an enterprise, the standard period is one, and for the construction of a highway - another.

The calculation of the payback period should be made taking into account the time lag between capital investments and the effect of them, as well as price changes and other factors (inflationary processes, rising energy costs, etc.). According to this approach, the payback period is the time period after which, at the considered discount rate, the positive cash flow (discounted income) and negative cash flow (discounted investments) will equalize.

In a simplified form, the payback period is calculated as the ratio of capital investments to the profit from them. However, this approach does not take into account the time estimate of investment costs. This leads to an incorrect, underestimated payback period.

It is more correct to analyze the investment attractiveness of projects, taking into account inflationary processes, alternative investment options, and the need to service borrowed capital.

Therefore, the payback period is equal to the sum of the number of years that preceded the payback year, as well as the ratio of the unrecovered value at the beginning of the payback year to the cash inflow during the payback year. The calculation algorithm looks like this:

Calculation of discounted cash flow based on the discount rate;

Calculation of the accumulated discounted cash flow as the sum of costs and income for the project - it is calculated up to the first positive value.

It remains only to substitute the indicated values \u200b\u200bin the formula.

The easiest way to assess the attractiveness of a project is to calculate the payback period.

The simple payback method is one of the easiest ways to evaluate a project. To calculate this indicator, it is enough to know the net cash flow for the project. Based on this indicator, the balance of accumulated cash flow is calculated. When choosing between several investment projects, the project with the shortest payback period is accepted for implementation.

Suppose that the initial investment for the project amounted to 180 million rubles. The project will be implemented within 5 years, it will annually generate cash flows:

1 year: 40 million rubles

2nd year: 30 million rubles

3rd year: 50 million rubles

4th year: 70 million rubles

Year 5: 90 million rubles

Using the data presented, it is necessary to compile an analytical table. The payback period for a project is calculated by summing up the annual cash flows until the sum of the cash inflows equals the initial investment cost.

The table shows that the accumulated cash flow balance is positive in the period between the 3rd and 4th year of the investment project. The following formula will help calculate the exact payback period:

In this example, the payback period will be: 3 years 10 months

The main disadvantage of this method is that the calculation does not apply the discounting procedure, and therefore does not take into account the decrease in the value of money over time.

The discounted payback period is the period over which discounted cash flows cover the initial costs associated with an investment project. The discounted payback period is always less than the simple one, since the value of money always decreases over time. The discounting procedure allows you to take into account the cost of capital used in the calculations.

Suppose that the initial investment for the project amounted to 150 million rubles. The discount rate is 15%. The project will be implemented within 3 years, it will annually generate cash flows:

1 year: 30 million rubles

2nd year: 120 million rubles

3rd year: 15 million rubles

Using the data presented, it is also necessary to compile an analytical table. The first step is to calculate the discounted cash flow in each period. The discounted payback period for a project is calculated by summing the annual discounted cash flows until the sum of the cash inflows equals the initial investment cost.

The table shows that the balance of the accumulated discounted payback period does not take a positive value, therefore, within the framework of the project, the payback will not be achieved.

Evgeny Malyar

# Investments

Calculation methods

In this article, we have provided all the necessary formulas for calculating the payback period of investments, and a ready-made Excel spreadsheet and an online calculator are also available for download.

Article navigation

The concept and application of the payback period of investments
Payback period of venture investments
Payback period of capital investments
Equipment payback period
How to calculate the payback period of a project: formulas and examples
A simple method for determining the payback period of an investment
Discounted (DPP) payback approach
Calculation with Excel and online calculators
Analysis of the obtained data and criteria for making investment decisions

Every investor, when making a decision to finance a project, wants to know how quickly his investment will pay off. The shorter this time, the better for him. To answer this exciting question, there is a very specific economic indicator - the payback period. Its formula seems very simple: it is enough to divide the investment amount by the expected net profit for the month or year. In fact, a lot depends on various other factors that should be taken into account.

The concept and application of the payback period of investments

In a simplified form, the payback period of investments is a “repayment period” (this is how the term payback period can be translated from English, abbreviated as PP or PBP), that is, the time to reach the “zero point”. Under certain circumstances, the investment begins to give returns almost immediately. For example, renting out purchased commercial real estate can generate income in the first month. However, it should be understood that this condition is not always met.

A number of investments are characterized by the need for lengthy preparation to bring the project to a state of commercial operational readiness. In simple terms, this means that it takes time for an investment to start making a profit.

In addition to this circumstance, it is necessary to take into account the possible need for additional investments during the implementation of the project.

Thus, the total period of full return on investment is determined by the minimum payback period and the duration of bringing the object to the state of commercial efficiency (the ability to generate current profit).

Based on the above provisions, it is possible to formulate a definition of the period during which the “zero point” will be passed.

The payback period of investments is understood as a simplified calculation indicator that characterizes the time required to recover the initial costs of the investor based on the planned level of profitability of the innovative project.

This formulation makes a number of assumptions:

First, it is assumed that the planned profitability will be achieved.
Secondly, nothing is said about the possibility of additional investments.
Thirdly, the level of inflation is not taken into account.

However, the difficulty of planning does not mean it is useless. No investor will finance a project without a business plan, which, in particular, indicates the estimated payback period.

Payback period of venture investments

The payback period of investments is inversely proportional to the profitability of the project. In other words, the higher the profitability of the business, the faster the implementation costs will be compensated.

The most difficult task is how to determine the degree of profitability of the venture. The methods are based on mathematical analysis and statistical evaluation of the profitability of previous investments.

The final formula looks like this:

PP is the estimated return on investment period;
R is the profitability of the invested project numbered i;
N is the total number of projects;
P is the probability of project success.

R and P parameters are given in decimal form less than or equal to one. It is easy to see that the denominator is the probability distribution of the possible outcome of the project. The statistics for each month or year necessary to calculate the chance of obtaining the planned profitability are kept by the investor himself, based on his own experience.

Payback period of capital investments

Capital investments are investments aimed at acquiring fixed assets. In other words, these are measures aimed at modernizing and re-equipping production facilities and carrying out design and survey work. As a result, the main economic indicators of the enterprise, in particular, profitability, should increase.

The payback period of capital investments is determined by a formula similar to the previously given one, since it is also a fraction.

PPI is the payback period for investments in the development of fixed assets, expressed depending on the selected time period in months or years;
CI is the amount of capital investments, rub.;
PRT - the amount of net profit received within the same time frame as the payback period (per month, quarter, half year or year).

The formula shows that the less money is invested and the higher their return (profitability), the faster the investment in fixed assets, that is, the capital investment, will pay off.

If a separate area of economic activity is subject to modernization, the payback period for the funds invested in it should not exceed the standard period of all other capital investments. This means that the entire enterprise cannot cover the costs of modernizing a separate project with its profitability - otherwise it makes no economic sense.

During the implementation of the project, there are often cases when the initial estimated base amount is not enough. Investments made in such situations are called additional.

The calculation of the payback period of an investment project for additional investments is made according to the formula:

PIA - payback period investments, expressed depending on the selected time period;
AI - the amount of investment with additional investment in the project;
CI is the base amount of capital investments;
PRTA - the amount of profit achieved after an additional investment;
PRTB is the amount of basic profit.

Equipment payback period

The payback of equipment is calculated according to the principle common to all investments. Some feature is the inclusion in the amount of capital investment of all costs associated with the delivery and commissioning of the fixed asset.

Equipment payback formula:

PPE - payback period of the fixed asset;
PRTE - gross profit brought by the operation of the equipment;
PREB is the base cost of the equipment;
PREA - incremental commissioning costs.

How to calculate the payback period of a project: formulas and examples

The methodology and shortcomings of calculating the indicator of the payback period for the implementation of a project or the introduction of new technology have already been partially covered. Cons - low accuracy and lack of consideration of many factors that affect the amount of cost and profit. The above methods, however, have an important advantage - they are simple and allow the investor to quickly pre-estimate the payback period of the project. The formula for roughly dividing the amount of investment by profit is relatively accurate if the implementation and achievement of the effect occur transiently. A more accurate calculation of payback is carried out by two methods: simple and discounted.

The discounted and simple methods differ in the participation in the formula of the coefficient (discount rate), which takes into account the cost of the diverted capital, which measures the effectiveness of its use. Below we will consider formulas and examples of calculations, as a result of which we will find the payback periods for investments by both methods.

A simple method for determining the payback period of an investment

The PP formula, which allows you to calculate a simple payback period (also referred to as Current in many sources), has already been discussed above.

PP - payback period;
I - the amount of investment;
PR is the net return on investment.

It is the mathematical simplicity of the calculation that is both its advantage and disadvantage.

Example: new equipment was purchased for an enterprise in the amount of 5.5 million rubles. During the year, it generated an income of 1.2 million rubles. Substitute the values:

It can be concluded that after about 4 years and 7 months there will be a full return on investment. At the same time, the formula allows for a static inflation rate, which is unlikely in real conditions.

In addition, the investor, investing, wants not only to compensate for the costs, but also to get some kind of return. Based on the result obtained, he is threatened with indirect losses (about them a little later).

Another drawback of the formula is that it ignores possible fluctuations in cash flows over time: it is assumed that costs will be repaid in uniform portions. Calculation on the balance of income in the end can lead to other results.

Discounted (DPP) payback approach

Determination of the discounted payback period (DPBP) of the project is based on the reduced net income. The principle remains the same as with the simple method. However, the calculation of the payback of the project by simply dividing the amount of investment by the profit, as a result, gives the duration without taking into account the discount. This is what makes the DPP approach different for the better.

The method is based on the use of a discount adjustment factor. It is calculated by the formula:

CD - discount factor;
S is the discount rate;
n is the number of the billing period.

The discount rate S is understood as a dynamic (variable) coefficient set by the investor based on the action of external factors and objectively existing circumstances. In particular, the capital invested in the development of the project can be invested alternatively. Funds can be placed on deposit at an interest rate depending on the refinancing rate of the Central Bank. Finally, every businessman has his own ideas about what should be the optimal income for each ruble invested.

The method of determining the payback period of an investment based on the DPP approach is applied in the same way as the simple one, but taking into account the present value of the project.

Example: an investor purchased a commercial property for 1 million 200 thousand rubles. and entered into a lease agreement, under which in 2015 he received an income in the amount of 100 thousand rubles, and in 2016 - 150 thousand rubles. The entrepreneur has set for himself a discount rate of 20% (0.2 in multiplier terms).

The discount factor for the first period (2015) will be equal to:

For the second period (2016):

Based on these data, the amount of profit received by him will be equivalent to:

100 thousand rubles x 0.833 = 83.3 thousand rubles – for 2015;
150 thousand rubles x 0.694 = 104.1 thousand rubles – for 2016;

The reciprocal of the payback period is called the efficiency or annual return of the project (D). Let's calculate these indicators for each year:

Accordingly, according to the results of 2015, the total discounted payback period is 14.49 years, and according to the results of 2016 - 11.49 years.

Calculation with Excel and online calculators

Calculating the payback of a project manually is not easy, but it is possible to automate the process. For this, a simple Excel table is used, consisting of four columns: month number, invested amount, incoming cash flows and incoming cash flows with a cumulative total (the new value is added to the sum of the previous ones).

A chart is attached to the form. Finding the payback period is simple - it corresponds to the month in which the diagram line intersects with the horizontal value of the investment amount.

By clicking on the picture, the payback calculation table in excel format will be downloaded.

It is even easier to determine the payback period of an investment using a calculator, an example of which can be seen at this link:

Calculator

Analysis of the obtained data and criteria for making investment decisions

The decision to finance the project is made depending on what factors are taken into account by the investment criterion, which is considered the main one in this situation. The most important and defining indicators are profitability and payback. The difference between them is that the higher the profitability, the shorter the period for the return of funds invested in the project, all other things being equal.

Not always the investor aims for a quick payback. In many cases, projects are financed with long-term returns. In addition, for different industries, the payback standards are different. The only obligatory condition for the implementation of the project is its high profitability after passing the “zero point”.

When you start a business or a new project within an existing business, it is extremely important for you to understand one thing: when your project will pay off.

The moment your project pays off, you will prove to yourself and to the whole world that it was worth investing in it. Moreover, you will prove to yourself that you are an entrepreneur!

Starting investments have already returned and now you can make a profit with peace of mind!

Before starting the calculation of the payback of the project

Before proceeding to the calculation of the payback of the project, let's ask ourselves the question: how is the payback measured?

The question is, of course, stupid. It is clear that not in meters and not decibels.

The payback of the project is ALWAYS measured in time: days, months, quarters, years.

For projects with initial investments up to 1 million rubles, it makes sense to measure the payback in months. For larger projects, in years.

After conducting hundreds of trainings with aspiring entrepreneurs, I realized one simple thing: all complex formulas and calculations do not work in real life. Moreover, they do not work in small businesses.

Therefore, I will try to discard complex economic terminology and explain in an extremely understandable language.

"Ingredients" for calculating the payback of the project

The payback of the project is an integral indicator. This means that in order to calculate it, you need to know a number of other indicators - these are the amounts income, expenses, profits, start-up investments.

Income- this is the money that you receive (or plan to receive) from your clients after the launch of the project. Customers will pay you this money for goods sold or services rendered.

Expenses- this, on the contrary, is the money that you pay to your suppliers of goods and services. These include the cost of raw materials, materials, work performed, rental payments. Also taxes, wages, insurance premiums - all this relates to the concept of expenses.

Profit = income - expenses

It's that simple. Therefore, to calculate the profit for the month, it is necessary:

add up all the cash receipts - income;
add up the entire expenditure of funds - expenses;
calculate the difference between the first and second

If we are talking about a project, then we mean future income, expenses and profits. It is advisable to plan monthly.

How do expenses differ from initial investments when calculating the payback of a project?

In addition to the concepts of income, expenses and profit, another indicator appears in the calculation of the payback of the project - initial investment amount or investment amount.

Starting investment is the amount of money that needs to be invested in order to start earning and receiving income from the project.

What is usually required to start a project:

buy equipment;
refurbish the premises;
buy furniture and office equipment;
buy an initial stock of goods in a sufficient assortment;
pass state registration;
get a license;
obtain permission for the type of activity from supervisory authorities

All this needs to be done in order to run a business and start making money. I emphasize that these investments must be made even before you start earning money from the project.

Difficulties always begin when it becomes necessary to separate costs and start-up investments.

A simple example: rent payments for the premises (rent or start-up investment?)

You rented a room and now it needs to be renovated. It will take about two months before you launch a business and start selling. Where to attribute the rent payments for the first two months: to start-up investments or to expenses?

There is one simple rule: all expenses relate to start-up investments until the moment you launch the project and start receiving income from it.

Starting a business and getting the first income is a kind of watershed.

Everything before that was a start-up investment. Everything after that is an expense.

Therefore, in our example, rental payments for the first two months must be attributed to the initial investment. It was necessary to rent a room in order to start earning income in two months.

After the first income is received, rent payments become expenses. You pay them monthly.

So, you need to remember a simple rule: all expenses that you will pay before receiving the first income from the project must be attributed to the initial investment. All expenses after this point can be attributed to current expenses.

The formula for calculating the payback of the project

To calculate the payback, it is necessary to compare all the profit received from the beginning of the project with the amount of starting investments.

At the moment when the amount of profit accumulated since the beginning of the project implementation exceeds the amount of initial investments, the project will pay off.

A project payback of 6 months means that the profit received in 6 months is more than the amount of the initial investment. But the profit received in 5 months still does not exceed it.

To calculate payback, you can:

Option 1. Calculate profit on a monthly basis, and then cumulatively for each month, comparing the amount of accumulated profit with the amount of starting investments.

An example of calculating the payback of a project

For example, let's take a simple life situation: you want to buy an apartment and rent it out. In principle, this is also a business project. The goal of this project is to make money.

1) We evaluate the initial investment

Starting investment in this case = the cost of the apartment + the cost of repairs + the cost of furniture = 5,000,000 rubles

2) We estimate the average monthly profit

Income \u003d monthly rent amount \u003d 50,000 rubles per month

Expenses \u003d the amount of utility bills + the amount of the current repair of the apartment (on an average monthly basis) \u003d 10,000 rubles

Average monthly profit \u003d income - expenses \u003d 40,000 rubles per month

3) We calculate the payback of the project

This is such a long-term project. Therefore, in order to earn money, no one buys real estate. Real estate serves rather for the purpose of saving money.

How to calculate the payback of your project?

Let's move on to the most important question - how to calculate the payback of your project. In order to solve this problem, you can use several methods:

Method 1. Take a sheet of paper and calculate. This method is the fastest and easiest. It is suitable for very simple projects like the one we just calculated (the apartment purchase project).

Method 2. Calculate everything in excel. This method is longer and less simple. This method is suitable for those who know how to use excel, prescribe formulas, set up tables. I have often used this method in the past.

Method 3. Take advantage of . Much easier than setting up formulas in excel. It can calculate projects of almost any complexity. Now I only use this method.

Project payback calculation