Simple and discounted payback period of the project. How to determine the payback period for fixed costs in a business using the Start-up capital formula in the calculation of the reimbursement formula

Before directing investments to modernize production or purchase goods, it is necessary to understand how quickly they will return. In this article, we will figure out how to calculate this indicator yourself.

You will learn:

• What is ROI and why is it important to a company.
• How to calculate return on investment.
• How to determine cost recovery for different business areas.

What is ROI and why is it important to a company?

The indicator is used for different purposes, and depending on them, there are nuances in its definition. For example, if investing in a business is considered, then the indicator indicates the period of time for which the money spent will be equal in size to income.

In most cases, it is the payback indicator that determines the entrepreneur's determination to invest in an idea. If the size of the indicator is small, then this indicates that you can quickly make a profit, which means it makes sense to invest in the business.

If we are talking about capital investments in a company, then the return on investment is the time it takes for the money spent on equipment or modernization to return to the company due to the proceeds received. Accordingly, if it is planned to reconstruct or open new workshops, the coefficient will play important role in decision making .

You can calculate the criterion for a piece of equipment, for example, if an organization needs to change one machine or buy a truck. In this case, the criterion will show how quickly the funds will be returned from the income from this equipment.

The indicator is used in all segments of the economy and is one of the first factors, starting from which, the founders make decisions on the contribution of their finances to the development of the company or opening a new business. It is equally important for agriculture and when buying a batch of Chinese goods, as it helps to eliminate situations with the “freezing” of money into an illiquid asset.

How to Calculate ROI

Real example of cost recovery calculation

Specialists use 2 main approaches to the calculation. They are subdivided depending on the change in the value of the money spent on modernization. Let's consider them in more detail.

Simple Calculation Method

This option does not take into account the depreciation of finance due to inflation and other factors. In serious business, this approach is rarely used and makes sense only if the following conditions are met:

• To study several startups with the same period of work.
• With a one-time payment at the beginning of the case.
• If the expected profit from the case will have equal shares in each of the time periods.

To understand how to determine the payback period with a simple approach, you should first check the implementation of all principles for the accuracy of the calculation. Then the data obtained will be able to show the exact value of the return on investment.

The low accuracy is due to the fact that changes in the value of money are not taken into account and the procedure for making a profit may be outside the estimated period. Despite this, the approach is quite common in the business environment, as it allows for a quick assessment of prospects.

With a simple version, a forecast can be made immediately by the value of the criterion: if it turns out to be clearly large, then there is no need for complex calculations, the idea is unpromising for investment.

SO = RI / NGP

• RI - the amount of investment.
• NGP is net income for the year.

With this simple equation, you can quickly calculate the ratio and understand whether you should invest in a business.

Discounted calculation method

It is used when a simple approach is not enough to accurately understand the benefits of the contribution. The method takes into account the changes that occur with finance over the period of work from various market influence factors. Together, they are expressed in an additional criterion - the discount rate.

It will show in which direction the value of the investor's money will change. For example, if investments amounted to 100 in thousands of rubles, the rate is 10%, and the project implementation time is 3 years, during this time the initial amount will turn into 133,100 due to cost growth. It becomes clear that the profitability of a startup will have to recoup the amount received with discount.

The formula for calculating the cost recovery in this case will look like this:

DR \u003d NDP / (1 + D) * Pv

• NPV is net cash flow.
• D is the rate expressed as a percentage.
• PV - the period of time for which income is received.

This option will allow you to accurately predict the speed with which the funds spent will be returned. The result may differ from simple to a greater extent, but it guarantees the veracity of the data, therefore it is often used on large projects or when upgrading an enterprise.

Where to invest money to recoup costs for 1 quarter

Anyone who plans to open a new business or invest in an existing one, as a rule, asks two key questions: how not to make mistakes when investing money and how to recoup all costs in the shortest possible time.

The electronic magazine "Commercial Director" answers these questions in the article at the link.

How to determine cost recovery for different business areas

Calculations are made according to the formulas discussed above, while they look similar for different areas of business. For clarity, consider examples in three different directions.

Agriculture

This area is characterized by a long business turnover cycle, so it is especially important to check the value of the indicator when it is necessary to invest assets. Consider an example of calculating the cost recovery using the formula in agriculture:

An organization producing fresh vegetables offers to invest in it 250,000 rubles of finance, while promising to bring 70,000 rubles of net profit per year. Let's calculate the expected time for the return of funds by a simple method:

SD = 250 / 70 = 3.5 years

These figures can be used to make a quick decision on a company's proposal, but they do not take into account market changes and the fact that new costs may arise.

Manufacturing organization

In any case, there comes a time when the need for modernization becomes obvious. It can be carried out step by step with the change of the most promising sections of equipment or immediately with the renewal of the entire line. In this case, the evaluation process needs to be taken more seriously and calculate the payback of production according to the formula, taking into account costs.

It is necessary to check the profitability of the workplace modernization project, which requires an investment of 150,000 rubles and promises to bring up to 50,000 rubles in net profit, but management also foresees possible expenses up to 20,000 rubles per year. The calculation will look like this:

NPV = 30 (excluding costs)

SD = 150 / 30 = 5 years

The example shows how to determine the payback period, taking into account additional costs and how they significantly increase the time to pay back.

Trade

In the field of retail, for example, the purchase of goods is done for large amounts of money, so you should start by calculating the coefficient. In this case, accuracy will be required, since the specialist must take into account the uneven receipt of profits, the cost of paying for warehouse space and the shelf life of products.

The trading company is going to purchase goods for 100,000 ₽, the planned income in the first and second periods is 40,000 ₽, in the last - 60,000 ₽. The estimated cost of the warehouse for the entire time is 15,000 ₽. Let's calculate the payback of products according to the formula:

Income = 40 + 40 + 60 = 140,000 ₽

Given the size of the initial amount, it becomes clear that the goods will be beaten off between the second and third quarters.

To determine the attractiveness of investment programs, the implementation of capital investments, a universal indicator is used - payback. What is payback, we will describe below.

Before investing in a new or existing business project, any investor evaluates his own risks, the time interval for the return on invested funds, and the prospects for making a profit.

The return on investment is the level of return on invested funds to their owner after a certain period.

Cost recovery is the ratio of the income received from the project to the costs incurred.

The payback point is the moment at which the invested funds are fully covered by the income received. After that, using a ratio or percentage or percentage return on capital invested (expenses incurred).

If the enterprise makes capital investments for the reconstruction of an existing facility, the calculation of the effectiveness of long-term costs is performed.

Payback period and how to determine it

The time interval for which the invested costs are returned by the received income is determined by simplified statistical methods, or taking into account the discounted cash flow.

A simple arithmetic calculation of the period of return on invested capital is defined as the amount of income (cash) received compared to investments invested in a business project.

The second method is economically more accurate and correct. Over time, financial resources are subject to inflationary processes, so it makes sense to take into account the discount rate that has developed in the region or a particular sector of the economy.

For shareholders, a simple method of determining the effectiveness of the acquisition of shares is to use indicators of net income per share, or accrued dividends per share.

Calculation formulas

For a simplified calculation of the effectiveness of investments, the following formula is used:

Payback period = investment / average annual profit

To calculate the payback period, taking into account inflationary expectations and applying a discount, complex formulas are used, for example:

Payback period with discount = P - (S DCFt / DCF+1),

• where P is the number of full years of the project, after which the payback point occurs
• S DCFt is the total accumulated balance of financial flows (taking into account the discount) up to the year of the payback point
• DCF+1 - discounted financial flow in the period of reaching the payback point

Calculation examples

Example 1. JSC "Ecoprom" made an investment in the production of food products using new technologies. The cost of the new project is 2 million rubles. It is planned to receive net profit from the project:

• 1 year - 50 thousand rubles.
• 2 year - 250 thousand rubles.
• 3 year - 500 thousand rubles.
• 4, 5 year - 750 thousand rubles.

For 5 years, the planned amount will be 2,300 thousand rubles or 460 thousand rubles per year. Payback period = 2000 / 460 = 4.3 years.

Example 2. The initial data for the business project of Ecoprom OJSC are set out in Table 1 (thousand rubles).

* calculation of the discounted amount - 100 / 105 x 50 = 47.6. Round up to 48.

Thus, taking into account inflationary expectations, the payback period for the new direction of the joint-stock company's activities exceeds 5 years. For example, if in the sixth year of activity it is planned to receive a net profit of 800 thousand rubles, then the total discounted payback period is 5 - (-88/800) = 5.11 years.

In addition to the discount for a real calculation of the repayment period, one should take into account the general economic situation in the region, the investment industry.

Evaluation of these factors will help determine the likelihood of additional investments needed during project implementation, unexpected costs, interruptions in sales and logistics processes.

Determination of cost recovery

The efficiency of the costs incurred is usually calculated in cases where the initial capital investment requires annual additional current costs. They are also calculated by two methods: simplified and discounted.

Example 3. A thorough analysis of the project of JSC "Ecoprom" revealed that in the process of its implementation, the current costs of the investor in the amount of 100 thousand rubles annually are additionally required. These changes will affect the net profit and financial flows of the project.

Table 2. (thousand rubles).

The table shows that the investor's costs, even according to a simplified calculation, will pay off only in the 6th year after the implementation of the business project.

For a potential investor or owners of an operating enterprise, the level of profitability of the business after reaching the “zero mark” of return on funds is important.

For example, if in 6-10 years of activity a business entity reaches a high level of profitability (over 25%), its participants will consider investments profitable and ready for further financing of activities. The planned estimate should include calculations of the return on invested capital for a long period (8-12 years).

To calculate the profitability of an investment, the formula is often used:

R inv. = (Income.inv - expenses.inv) / 100%

The calculation takes into account investments, income and expenses (including taxes, obligatory payments) related to the business object.

If a long-term bank loan is used in full or in part for investment, the experts of the creditor bank additionally pay special attention to the solvency of the borrower on the key dates of repayment of the loan, interest for its use using estimated debt coverage ratios.

What to consider when purchasing a business?

In the modern business world, potential investors are offered a huge number of prepared projects of economic activity:

• Existing businesses put up for sale
• Offered
• Buy (lease) prepared premises, equipment, technologies

Usually, when selling a business, it is presented “in a pink light” and talk about the bright prospects for the development of the proposed industry. Payback period for sellers business rarely goes beyond 3 years, they promise high returns.

Buyer payback period in the calculation, it can turn out to be many times more if he carefully studies the proposed business plan, analyzes the situation on a specific product market in a given industry and region, gets acquainted with the suppliers of raw materials, materials necessary for the production of products, its main potential customers. Along with an accurate assessment of the payback period of the proposed business, it is useful for the investor to get acquainted with the experts with the future opportunities for its sale in the coming years.

When calculating the payback, it is necessary to take into account not only the initial investment, but also the additional costs required in subsequent periods of the project. Its profitability may be affected by changes in exchange rates, the cost of the main elements of expenses (for example, fuel, electricity, metal), changes in types, tax rates, and other economic risks. The more accurately the calculations in the business plan are performed, the higher the likelihood that the project will pay off within the planned time frame.

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What does this indicator mean?

The level of profitability shows how effectively the current costs of the enterprise are used. It is calculated as a percentage, expressed by the degree of profitability, that is, the size of net profit.

In order to receive a net profit, an enterprise must carry out expedient activities, depending on the turnover of capital, the volume of products produced or sold. Profit is spent on development, provision of scientific and technical equipment, increase in wages of employees, formation of budgetary funds.

It is expressed in two terms:

• Absolute. It is the amount of revenue that exceeds the cost of economic activity, production.
• Relative. Shows the rate of return.

The net profitability is calculated for the whole enterprise or its separate divisions, according to the type of products produced. Analysis of its indicators allows you to get the dynamics of development, production efficiency, sales of products.

Payback of different kinds with formulas

According to the instructions of the President of the Russian Federation, marginal levels of profitability in the amount of 10-20% are applied to products that, in accordance with the current legislation, set free prices - tariffs.

For goods with established rent payments in the form of excise taxes, they are determined without taking them into account.

With an increase in the share of production costs due to the use of purchased materials, semi-finished products and components exceeding 85 % it is set to the size 15 percent.

Table 1. Current indicators

Cost

Payback is the economic efficiency of the invested authorized capital. The payback period is calculated by the formula:

T=Vzat/D, where

Vzat– the amount of invested capital;
D- the average amount of income growth for the period under consideration.

It is used when choosing the best options for the implementation of the enterprise's activities regarding technical and design solutions, production technology. Different options require different capital investments and operating costs.

ROI is calculated as:

P=Prp/S,

where Prp- profit before tax;
FROM- the total cost of the product that was sold.

According to the indicator, a graph of dynamics is built, showing the need to revise the cost of production, increase the cost. The volume of trade increases with an increase in profitability, if the value of costs remains unchanged, then profit increases accordingly and vice versa.

Activities

Cost recovery in production activities is calculated as the ratio of net profit and depreciation for a certain period of time to the amount of expenses spent on the sale of products, which refers to operating costs.
Her formula:

R \u003d (Pchp + Amor) / Z,

where PPP- net profit;
Amor- depreciation deductions;
W- the cost of production and sale of products.

In production activities, the profitability ratio of the organization expresses the payback of production costs, the amount of profit for each ruble spent on the production and sale of products.

Services

The provision of services in any area does not require certain production costs.

In this situation, the sold product becomes a “service”, so its cost and profit depend on the quantity.

It is necessary to form the cost of the service provided, taking into account the field of activity, calculate the projected demand, and find the gross income. Subtract variable and fixed costs from gross income.
The payback period for the rendered service is calculated by the formula:

Tu=Zu/Pu,

where Zoo- the costs invested in the business;
Pu- the planned profit that will be received as a result of activities for the provision of services.
The effectiveness of the services provided is calculated by the formula:

Rsd \u003d (Psd * Spvr) / Z * 100%,

where W- costs associated with the organization of services;
spvr- the number of services for a certain period of time;
PSD- profit from the sale of services.

Watch a video on the topic of profitability and profitability of the enterprise

Fixed assets

The means of labor that take part in the production process while maintaining their original form are classified as fixed assets. This also includes tangible assets used in the production or provision of services, which make up the difference between the cost of fixed assets and accumulated depreciation.

They ensure the activity of the enterprise for a long time, receiving physical wear and tear, which reduces them and transfers them to the cost price through depreciation.

Payback of fixed assets is determined by the formula:

T=Os/Pch,

where OS- fixed assets of the enterprise, expressed in monetary terms;
Pch- net profit for a certain period of time.
The effective use of fixed assets is determined by the formula:

Rosn \u003d Pch / Os * 100%,

where os- the value of fixed assets;
Pch- the amount of net profit.

Deals

The profit from the transaction for the sale of products should be commensurate with the costs of its organization. In a simplified form, a condition is provided in which the payback is equal to the costs.
The payback includes the total profit from all transactions:

O=P*Co,

where P– average profit per trade;
So- the number of transactions.

If a company has taken a loan from a bank for the development of an enterprise, then the bank loan is taken into account in the calculations.

You can estimate the payback period for separate types of transactions using the formula:

Tokup \u003d W / (Sper * P),

where W- costs associated with the organization of the transaction;

sper- the number of transactions for a certain period of time;

P- the average profit received as a result of the transaction.

Rsd \u003d (Psd * Sper) / Z.

Personnel

Capital investment in labor must pay off, in addition to make a profit. The payback is in direct proportion to the length of service of the employee at the employee's enterprise.

Payback of personnel is calculated by the formula:

T=Zed/Fgod,

where T- payback period;

Zed- one-time costs;

year– annual economic effect.

The enterprise, in order to obtain the effect and increase the length of service, carries out work on:

• expedient operation of the working time fund, employee training, increase in labor productivity;
• increase the period of stay of the employee at the enterprise. Great work experience leads to a quick payback.

Consequently, in a team with a stable environment, where working time is fully used, conditions are formed for obtaining a return on funds and making a profit.

The profitability obtained from the use of personnel can be calculated by the formula:

R \u003d Pch / Kp * 100%,

where Pch- net profit;
Kp- the average number of employees on the list.

net profit

The payback period can be traced on the example of a store that has been operating for some time. To determine the payback of net profit, it is necessary to find the size of the gross revenue of the outlet for the period under consideration. Further, the amount of profit that the organization intends to receive in the course of its activities for the same period of time is determined.

Then the net profit is:

P=W*Stz

where AT- gross proceeds from the sale of goods;
stz- current expenses.

The payback period is calculated by the formula:

Tokup=Ko/Pch

where Co.- investment in the purchase of goods;
Pch– net income after taxes.
The profitability ratio from the sale of goods can be determined by applying the formula:

Rpr=Ppr/Vpr *100%,

where PPR- profit received as a result of sales of products;
VPR- sales revenue.

properties

To determine the payback, it is necessary to compile a list of property that is on the balance sheet of the enterprise, indicating each of them. The depreciation cost must then be calculated individually.

The calculations contain the residual value of the property, calculated as the difference between the original cost and the depreciation amount. Depreciation is calculated according to the instructions of the Uniform norms for depreciation objects, which is given in accounting.

To determine the payback period of the property, the following formula is used:

Tim \u003d Comp / Pch,

where Composition- the value of the property of the enterprise;
Pch- net profit for the period under consideration.

Efficient use of property for a certain period of time is determined using the formula:

Rome \u003d Pch / Comp * 100%,

where Pch- net profit received as a result of the operation of the property;
Composition- the residual value of the property for a certain period of time.

General

The total payback period of funds invested in production is determined by the period of achievement of the result, which acts as a profit or a decrease in the cost of production.

The payback period is calculated in different ways, depending on the amount of incoming cash and taking into account inflation.

The overall profitability is determined as follows:

P=V/P,

where V is the total volume of capital investments;
P- average annual income to the enterprise.

According to the total payback period, the economic activity of the organization, its profitability, economic efficiency and the feasibility of further development are established. Based on this assessment, improvement methods are developed to be adopted for the reorganization.

Methods for calculating the level of profitability

By balance

The activity of any organization is based on an indicator of overall profitability, so most enterprises must ask themselves the question: how to calculate profitability? It is the main parameter in financial analysis.

Book profit margin is calculated using the formula:

R=Pb/F*100%,

where Pb- the total amount of profit on the balance sheet;
F- the average annual cost of fixed assets, intangible assets and tangible working capital.

In order to establish how much an organization has developed over a certain period of time, in addition to the general one, it is necessary to find values ​​that characterize the profitability of turnover and capital turnover.

In a market economy, the turnover indicator has received the greatest use: the higher the profit, the greater it is. The number of turnovers of capital is expressed by the ratio of gross proceeds, that is, turnover, to the value of its capital. An increase in the number of turnovers of capital leads to an increase in the gross proceeds of the organization.

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By EBITDA

To establish the capabilities of the enterprise, to determine the value of the business, the EBITDA index is used, which means gross profit without deducting interest accrued on it, dividends, before taxes, depreciation.

The initial data for calculating the indicator are qualitative and undistorted accounting data.

These figures are obtained from the financial statement prepared in accordance with IFRS. With the help of the coefficient, the operating results of the enterprise are evaluated, which is closest to the operating cash flow.

The EBITDA calculation reflects the profitability of the company's sales, future cash and earnings for the reporting period. The calculation helps to evaluate the return on investment and self-financing reserves.
EBITDA calculation is carried out according to the formula:

E \u003d P (U) days + (% purchase + Aon),

where P(U)day– profit (loss) before taxation;

%purchase- Percentage to be paid;

And he– depreciation deductions of fixed assets and intangible assets.

The calculation of the EBITDA margin is calculated as:

EBITDA margin = EDITDA / Sales revenue

EBITDA is earnings before interest, taxes and depreciation.

If there was a loss

If the company suffered a loss over the past year, then the profitability index does not need to be calculated, but you can calculate the payback of products.

To do this, use the formula:

Oprod=B/Sprod

where AT- proceeds from the sale of products;

Sprod- cost of goods sold.

Ways to increase the indicator

Many factors influence the level of profitability in sales of products. The main ones are:

• growing cost;
• decrease in product sales.

To increase it in the first case, a rigorous analysis of the costs included in the cost of production is carried out. Based on the data obtained, ways to increase profitability are modeled, studies of the possibility of reduction. Based on the audit, the following decisions should be made:

• on the basis of the analysis, identify significant and rising expenditure items;
• reduce costs as much as possible without compromising production;
• clearly distinguish between fixed and variable costs in order to calculate the profitability threshold, which corresponds to the volume of turnover without loss, but also without profit;
• to analyze the profitability of separate types of products, based on profit margin, to examine the possibility of replacing the range of products;
• review marketing activities, improve product quality, develop a sales plan for products using promotional activities.

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

1. development of an investment project and construction (creation) of an object;
2. mastering technologies and reaching full capacity;
3. normal operation and return on investment;
4. operating time of additional profit after a one-time payback;
5. 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 is usually 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 say that “it is not correct to calculate payback period 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%)

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 period of freezing of IZ before the start of return and the period of "working off". 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 value of PV 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 makes it possible to reveal 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 was paid (the first part of the investment) 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 NPV calculation 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 a certain point within the investment phase, which is a conditional point of the time scale, in which all the moments of investing are summarized (recall, it is conventionally accepted 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.

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" / NDDt"

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:

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

The payback period plays a major role in the evaluation of investment projects, along with profit indicators. Especially in Russia, where the risks of losing capital are high, it is important for every investor to understand when the project will “become a plus”. Read how to calculate the payback period of the project and not miscalculate.

What is the payback period of a project?

The payback period has a fairly simple and understandable definition - this is the number of periods (years, months), after which the total cash flow from the project will become zero.

It is important that after the project payback period has passed, the total cash flow must remain positive throughout the entire calculation period. That is, if the project “became a plus”, and after several periods “rolled into a minus”, then the payback period of the project has not yet passed.

However, why are there so many disputes and incorrect calculations regarding the payback period of projects?

In fact, there are two payback periods for the project - simple and discounted, and there are even more formulas for calculating them. Let's start with the basics - with formulas.

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How to accurately calculate the payback period of an investment project using Excel

The payback period of an investment project is one of the key indicators of investment efficiency, by which you can determine their feasibility, choose between several investment objects, etc. To quickly and accurately determine it, you need to:

• understand what initial data and in what form will be required for calculations;
• develop a special form in Excel.

An example of calculating a simple payback period

The project manager got tired of office slavery and decided to become a self-employed taxi driver. The idea of ​​getting a free schedule tempted him, but still, before making a final decision, he calculated the investment attractiveness of the project.

To get started, he needs: to purchase a car for 720,000 rubles, a license and other equipment for 30,000 rubles. Thus, the initial investment, according to his calculation, will amount to 750,000 rubles in the first month. To buy a car, you will have to take out a loan at 16% per annum for 5 years and pay 345,600 percent rubles on it. He did not take into account the depreciation of the car.

Working 8 hours a day, he will be able to receive a net income (minus the cost of gasoline, interest on the loan and the share of the aggregator) of 100,000 rubles per month.

The manager built a spreadsheet in Excel

Based on the results of the calculations, he realized that the payback period for his personal project would be eight months. That is, only by the eighth month he will start earning directly.

Comparing such results with his salary of 60,000 rubles in the office, and considering that in 7 months he will have time to earn 420,000 rubles, he decided to postpone his dismissal, but for now, save for buying a car not on credit.

Discounted payback period

If it is enough for an entrepreneur to calculate the payback period of the project, then professional investors know that the income from the project, which is equivalent to the amount of money invested in the project, is not a zero income, but a loss. The investor always evaluates the attractiveness of the project in comparison with other investments, for example, opening a deposit in a bank, buying securities, alternative business projects.

Thus, the investor forms his own discount rate - the threshold value of interest at which he is ready to invest.

The technique that helps to take into account the depreciation of the investor's money is called discounting.

Where DCF is discounted cash flow,

CF - cash flow in the n-th period,

The discounted payback period of the project is the number of periods (months, years) after which the project will pay off, taking into account the discounted cash flows. In articles and literature, you can find other names for the discounted payback period - Discounted Payback Period, DPP, payback period.

The formula for calculating the discounted payback period:

That is, the formula for calculating DPP is the same as PP, only the terms differ.

An example of calculating the discounted payback period

A private investor received a project for a new fitness center for consideration. The creators of the project are interested in receiving 152 million rubles, 102 of them are planned to be received in the first year, 50 in the second. The planned income from the project will be 20 million rubles in the first year and 30 million rubles in the remaining periods. Entrepreneurs calculated the payback period of the project to be 4 years 5 months. Is such a project interesting for an investor if he has an alternative to investing money at 15% per annum with the same risks?

The investor's accountant compiled an Excel spreadsheet using the POWER function to determine the discounted cash flow.

We see that using the threshold rate of 15%, the payback period of the project is no longer 4 and a half years, but 8 years. Further, the investor assesses the risks: what can happen in the country's economy, in the fitness services market and in his own plans for 8 years, and is he ready to risk the money invested for such a period? In Russia, the answer to this question is most often negative.