Advice 1: How to calculate the payback period of the equipment

Term of payback of the equipment – an economic indicator that should count in the analysis and planning of economic activities. He characterizes the time in which the money spent on the acquisition of another means of production will return in full through the use of the unit.
How to calculate the payback period of the equipment
To start, determine the amount that the company is ready to allocate for the purchase of new equipment. It will engage directly the cost of acquisition, and costs associated with installation and commissioning. For example, if you plan to acquire an additional pipeline, which will allow to redistribute the workload, the parameter "Capital investments" calculate the price of the device, the amount of delivery, the cost of installation and start-up. However, if all the preparations was carried out by a staff member of the company, and therefore the organization was able to avoid additional costs, over and above the purchase cost to add nothing.
Calculate the amount of gross income derived from the use of equipment. For example, if a new furnace in a month is to bake 500 loaves of bread and sold at a price of 20 p per unit of product, and raw material costs from the calculation of a loaf will be 5 R, then gross profit will be equal to R 7500 (7500 = (20 R – 5 R) * 500). While the costs of the salary Fund are not taken into account, but if the service equipment is employed additional staff, payments for newly hired employees need to be considered. Tax deductions should be ignored – they will in any case depend on the total amount of income. Thus, gross income is the difference between the sales price and production costs in trade – the amount of allowances.
Put the indicators in the formula:T = K / VD, where T is the period of return; – capital expenditures; VD – gross income.When calculating the period of payback can take any length of time. If you select quarter, the amount of gross income is also taken per 3 calendar months.
Instead of yield, you can substitute the value of saving, which will become possible after the introduction of additional units of equipment, because according to popular wisdom, "Saved – then earned".

Advice 2 : How to calculate payback

To think that the ability to calculate the return should have only economists and businessmen, is fundamentally wrong. Each family is investing money in apartments, houses, cars and Bank deposits. All it is capable of after some time, grow in value and benefit to their owners. Therefore, to talk about return on investment and can be with friends, with colleagues, and neighbors on the landing. And it is not surprising if they don't know the phrase "return on investment", because not everyone can be economists and businessmen.
How to calculate payback
You will need
  • calculator
  • - handle
  • - a sheet of paper
For home use the payback calculation is extremely simple and unpretentious. To calculate the payback, you need the value of the invested funds divided by the amount of profits. The obtained value will show the period of time during which there will be payback.
For example, we bought an apartment on the first floor of a residential building over 3 000 000 RUB 600 000 we spent for repair and bureaucratic procedures and the arrangement of the adjacent territory. Then, by submitting the Declaration, handed over the premises to the lessee, who is to pay the monthly utilities and the amount of 40 000 rubles.
Thus, our investments amounted to 3, 600, 000. And the monthly profit of the project is 40 000 rubles. For the full payback of the investment will be required to surrender our space for rent for (3 600 000 / 40 000 90 months, or 7.5 years.
Another example. Each invites us to engage in cargo transportation. They will need the car GAZelle, which have to be purchased. Suppose that the value of the monthly profits from the cargo after all expenses for repairs and fuel are expected to be about 40 000 RUB. let's Say we buy a used GAZelle for 300 000 rubles.
Thus, the ROI will come through the (300 000 / 40 000 a) 7.5 months.
In addition, the ROI can be compared, choosing more lucrative opportunities. Compare the income from the GAZelle from the previous example, with income on Bank deposits at a rate of 10.5% per annum.
For ease of comparison, take the amount of the Deposit equal to the cost of the GAZelle, 300, 000. Assume that, under the terms of the Bank, interest is paid at maturity. Thus, after 1 year, the amount of our investment will grow to (300 000 * 10,5%) 31 500 rubles. And we will have 331 500 rubles.
For 12 months of work in freight, we will receive (40 000 x 12) 480 000 RUB. From a mathematical point of view, this means that in our examples it is more profitable to invest in transportation, and not to the Bank.
I hope that now you will make financial decisions with greater rationality.

Advice 3 : How to find the payback period

Period payback is the time interval over which the investment in the project will pay for itself in full. Typically, this time interval is measured in months or years. But how to find the period of payback , and that it may need?
How to find the payback period
You will need
  • table showing the time (e.g. year) and appropriate capital investment in the project, calculator, Notepad and pen
Make a table of the investment (investments) and projected revenues from the project for each year. For example, the company plans to implement the project "X", the value of which is estimated at 50 million rubles. In the first year of implementation, the project has required additional investments in the amount of 10 million rubles. In the second, third, fourth and fifth year it is planned that the project will bring profit in the amount of 5, 20, 30 and 40 million rubles respectively. Then the resulting table will look like the following:
The time period and the Investment and profit
0 - 50 million rubles
1 - 10 million rubles
2 + to 5 million rubles
3 + 20 million rubles
4 + 30 million rubles
5 + 40 million rubles
Determine the discounted accumulated flow, that is, the amount of attachment that varies according to the planned income. For example, at the enterprise the project "IKS" the impact of the project or the discount rate is 10%. Calculate the accumulated discounted flow before the first positive value according to the formula:
NDP = B1 + B2/(1 + SD) + B3/(1 + SD) + V4/(1 + SD) + B5/(1 + DM) where
The NDP is the accumulated discounted flow V1-5 – attachments for a certain period of time, SD is the discount rate.
НДП1 = - 50 – 10 / (1+0.1) = - 59.1 million rubles.
In this way we hope НДП2,3,4 and so on, until a zero or positive value.
НДП2 = - 54.9 million rubles
НДП3 = - 36.7 million rubles
НДП4 = - 9.4 million rubles
НДП5 = 26.9 million rubles
Thus, investments into the project will pay off fully only in the fifth year of the project.
Calculate the exact period of payback of the project according to the following formula:
T = TC + (NC/PN),
Where T – period of payback, TC is the number of years prior to payback, NS – unrecovered cost of the project at the beginning of the year of payback, that is for 5 year (last negative amount NPD), MON – cash flow in the first year of payback (40 million rubles).
In our example, T = 4 + (9.4 / 40) = 4,2 year.
In other words, the project will pay for itself in 4 years, 2 months and 12 days.
Payback period allows you to determine at the stage of development in which cases (with known costs and amount of profit) the project will be profitable.

Advice 4 : How to calculate the payback period of the project

For the successful implementation of their own business important item is planning, requiring mandatory calculation of the payback period of the project. This indicator is required when writing a business plan and finding investors, as this item interests them first and foremost. How to calculate the period of payback of the project?
How to calculate the payback period of the project
You will need
  • calculator,amount of investment, variable and fixed costs, planned profit, Notepad and pen
Calculate the necessary volume of investments. The payback period of the project is the period of time over which net income from the investment of the project will be able to fully cover the entire investment in the project. This indicator is denoted as "S inv.
Calculate variable and fixed costs. To permanent are those costs that do not change their values, i.e. salary of employees (salary), rent, etc. Variables are, on the contrary, such costs, the amount of which depends on the premium of employees, electricity costs, and similar expenses. These indicators are referred to as "S post. ed" and "S lane ed, respectively.
Determine the amount of planned revenues. At this rate sphere of activity, seasonality and other factors. This indicator is denoted as the "S exp".
Calculate the net profit received from realization of the project. For this you need to use the following formula.
S PR=S exp-(S post. ed+ S ed lane)
It should be remembered that the figures for different years are not the same. If business develops successfully, the costs are growing (requires more space, more staff, etc.), but revenue and profit are also not standing still.
Find the break-even point. This point is called the moment when all monies invested in a project pay off. This time will be the periodof ω payback of the project, that is, when all the investments in the project, returned. To calculate this indicator you need to use the following formula
S inv – S PR
When the answer is zero – the project will be considered fully recoup. If a large-scale project for a year, he couldn't get to breakeven, so the metrics should be calculated for several years.
When developing the business plan of the project, should remember and understand that the period of payback of the project is not calculated separately from other indicators. It is always associated with the index of the current value and the internal rate of return (IRR).

Advice 5 : How to determine the payback period of the project

When buying a ready business or the preparation of an investment project has to consider a number of indicators showing economic efficiency of investments. One of the fundamentally important parameters of a project is the term of its payback, that is the expected number of years required for the full recovery of investment costs.
How to determine the payback period of the project
Review the formula for calculating the period ofa recoupment of the project:T(s) = T1 + S / N;where:
T (OK) period of recoupment;
T1 – the number of years that precede the year of recoupment;
– Unrecovered cost (beginning-of-year payback of the project);
N – cash flow per year payback.
For a better understanding study the method of calculating the term ofa payback with an example. Suppose that the investment project "alpha" requires investments in the amount of 1,000 conventional units. The forecast revenue stream as follows: 1 year – $ 200.e. 2 year – 500.e. 3 year – 600.e. 4 year 800.e. 5 year 900.e. The discount rate is 15%.
Use a method of calculation based on a provisional assessment of cash flow. The fact that a simple static approach indicates that given as an example, the project will pay back in 2 years and 6 months. But this term does not take into account the rate of return for investment in a particular chosen field, and therefore can not be a true representation of temporal parameters of payback.
Calculate the discounted cash flow revenues for the project. The proceeds from the discount rate and the period when the income arises.
Calculate the accumulated cash flow, which will be the simple sum of costs and flow of revenues on the investment project.
Accumulated discounted cash flow to calculate the first value with a positive status.
Define the term of recoupment according to the above equation.T (OK) = 3 + 54/458 = 3.1 years.In other words, for the real compensation the amount of the investment expenses taking into account the time factor will need significantly more timethan we got when calculating the simplified method.
Payback period it is recommended to rely on projects that are financed by long-term commitments. The result of calculations payback period should not be less than the period of use of borrowed funds, which is set loan agreement.

Advice 6 : How to calculate payback period

The rate of return on investment is a key criterion for the attractiveness of an investment project. The payback period enables the investor to compare different options for the business and choose the most suitable according to his financial possibilities.
How to calculate payback period
Remember that payback period is the length of time from the initial stage (project implementation) up to the moment when it will be repaid. The payback time is considered the time after which the cash flow from the project becomes positive value and remains so.
The method of calculating the payback period of the investment is to determine the period that will be needed to reimburse the initial cost of the investment. The payback period is an indication, will be reimbursed or not the initial investment during the life cycle of the project.
There are two ways of calculating the payback period. If revenues from the project for all years are the same, the payback period can be calculated as follows:
PP = I/CF where:
PP – payback period,
I – the initial investment in the development of the project,
CF – the average annual value of cash receipts from the project.
If cash flow by year is not the same, then the calculation of the payback period is carried out in several stages. First, find an integer number of periods over which the cumulative amount of proceeds of the project will be the closest to the original investment amount but surpass it. Then, calculate outstanding balance – the difference between the amount of investment and the amount received receipts. Then uncovered for the remainder divide by the amount of cash receipts of the following period.
Note that these methods have some disadvantages. They ignore the difference in the value of money in time and the existence of cash receipts after the end of the payback period. In this regard, the calculated discounted payback period, which refers to the duration of the period of time from the initial moment to the moment of recoupment taking into account discounting.
Remember that discounting is determining the present value of cash flows we will receive in the future. In other words, is transferring future value of money at present. In this case the discount rate is determined on the basis of percentage in safe investments based on interest on borrowed capital, according to expert estimates, etc.
Discounted payback period is the most appropriate criterion for evaluating the attractiveness of an investment project, because it allows you to put in the project some risks, such as reduced income, increased costs, the emergence of alternative the most beneficial areas of investment, thereby reducing its nominal efficiency.

Advice 7 : How to determine the payback period of capital cost

Payback - one of the indicators reflecting the economic performance of the company. It characterizes how well and successfully used investment.
How to determine the payback period of capital cost

The essence of the payback period of capital investments

In economic analysis there are different approaches to the definition of the payback period. This figure is used in the framework of a comparative analysis in the determination of the most favorable option for investment. It should be noted that it is only used in complex analysis, make the payback period for the main parameter of efficiency is not quite right. Definition of payback period as a priority is only possible if the company is focused on rapid return on investment.

On the other hand, under other equal conditions, preference is given to projects that have the shortest payback period.

During implementation of the project with borrowed money, it is important that the payback period was shorter than the period of use of external borrowings.

The indicator is a priority in that case, if the investor's principal is the most rapid return on investment, for example the choice of ways of financial improvement of bankrupt enterprises.

Under the payback period is the period during which the reimbursed capital costs. This is achieved due to additional income (for example, more efficient equipment) or savings (for example, the introduction of energy efficient production lines). If we are talking about the country, then compensation is due to the increase in national income.

In practice, the payback period is the time period during which the profits of the company, secured capital investment equal to the investment amount. It can different - a month, a year, etc. Importantly, the payback period did not exceed normative values. They differ depending on the specific project and industry focus. For example, to upgrade equipment at the enterprise normative one, and in the construction of the road is another.

The calculation of the payback period should be performed with respect to the time lag between capital investments and the effect of them, as well as changes in prices and other factors (inflation, rising cost of energy, etc.). According to this approach, the payback period - the time period through which when considering a discount rate would level a positive cash flow (discounted income) and negative (discounted investment).

The calculation of the payback period

In its simplest form, the payback period is calculated as the ratio of capital investments to profit from them. However, this approach does not account for the temporal estimation of the investment costs. This leads to nekorrektno, a conservative estimate of the payback period.

More correct is the analysis of investment projects taking into account inflation, alternative investment options, maintenance of the loan capital.

Therefore, the payback period is equal to the sum of the number of years that preceded the year of payback, and relationships unrecovered cost at start of year payback to cash flow during year of payback. The calculation algorithm is as follows:

- calculation discontinuing cash flow based on discount rate;
- calculation of cumulative discounted cash flow as the sum of costs and revenues on the project - it is calculated before the first positive value.

It only remains to substitute these values into the formula.

Advice 8 : How to calculate the payback period

For the evaluation of investment project efficiency in financial management uses various methods and criteria. The easiest way to assess the attractiveness of the project is to calculate the payback period.
How to calculate the payback period


Calculation of simple payback period

Method simple payback period is one of the easiest ways of evaluation of the project. To calculate this index it is enough to know the net cash flow for the project. Based on this calculated balance of accumulated cash flows. When choosing among several investment projects to implement the adopted project, whose payback period is the least.

Assume that the initial investment in 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

2 year: 30 million rubles

3 year: 50 million rubles

4 year: 70 million rubles

5 year: 90 million rubles

It is necessary to calculate the simple payback period.

Using the data presented, it is necessary to make the analytical table. The payback period for the project is calculated by summing the annual cash flows as long as the amount of future cash inflows is equal to the magnitude of the initial investment costs.

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

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

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

The calculation of the discounted payback period

Discounted payback period is the period for which the discounted cash flows to cover the initial costs associated with the investment project. Discounted payback period is always less than simple, as over time, the value of cash is always decreasing. The procedure of discounting allows to take into account when calculating the cost of capital employed.

Assume that the initial investment in 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

3 year 15 million rubles

It is necessary to calculate discounted payback period.

The presented data it is also necessary to make the analytical table. In the first stage is calculated discounted cash flow in each period. Discounted payback period for the project is calculated by summing the annual discounted cash flows as long as the amount of future cash inflows is equal to the magnitude of the initial investment costs.

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



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