Payback Period
Definition
The time it takes for a project's cash inflows to recover the initial investment. It is simple and widely used but ignores cash flows after payback and the time value of money.
Related Terms in Financial Analysis
Cost-Volume-Profit (CVP) Analysis
A technique examining how changes in sales volume, costs and prices affect profit. It underpins break-even analysis and decisions on pricing, product mix and target profit.
Cash Burn Rate
The rate at which a business, often a startup, spends its cash reserves before reaching profitability. Gross burn is total cash spent; net burn is spending less any cash coming in.
Cash Runway
How long a business can keep operating at its current net burn rate before it runs out of cash. It tells founders how much time they have to reach profitability or raise more funding.
Customer Lifetime Value (CLV)
The total profit a business expects to earn from a customer over the whole relationship. Comparing it to the cost of acquiring a customer shows whether growth spending is sustainable.
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