What is the return period?

The payback period is the time to pay for the investment for itself. The basic calculation used to estimate the payback period is to distribute the costs of investing by annual revenues. This simplified calculation can give people a rough figure, but usually the situation is a bit more complicated. The problem of the return period is one of several things to be taken into account when making a new investment. The product costs 1,000 units of currency, but is intended to save about 200 currency units every year. The period required to violate uniform is five years. At the end of the return period, the product was paid for itself.

One of the problems with the return time is that it does not consider profitability. If it continues to work in the above example five years after it breaks in costs, the company actually produces 1000 units of currency. This calculation also does not interfere with what is calledá "time value of money" and refers to the idea that one currency is usually worth more than it will be in the future. This is the result of inflation and the fact that the currency can obtain interest; If the company now spends 1000 currency units, it will not be available to get interest.

In calculating the return period, it can also be prevented by the fact that yields are rarely stable. In some years, the investment can pay more more than others. This can greatly complicate matters, especially with investments that are unpredictable and volatile. For example, a plumber who buys a new imaging camera can find that it is paid in six months, thanks to a number of jobs for which the camera was needed, or it takes two years because the camera is not used in the first year and much more in the second.

Financial advisors can help people determine the probable return period related to investment and help people take informed purchase decisions. Investments can be includedWatch equipment, buildings, shares and many other purchases of goods, financial products or services depending on the situation and nature of the investor.