**Excel **is a powerful software. We can perform numerous operations on our datasets using excel tools and features. There are many default **Excel Functions** that we can use to create formulas. Many banks and other financial institutions use excel files to store important data. They need to calculate various outputs and it’s easier to do that in excel. This article will show you the step-by-step procedures to **Calculate Payback Period **in **Excel**.

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## Download Practice Template

Download the following template to practice by yourself.

## Step by Step Procedures to Calculate Payback Period in Excel

The length of time (**Years/Months**) needed to recover the initial capital back from an investment is called the **Payback Period**. This is a capital budgeting term. A shorter payback period is more lucrative in the case of investments contrary to more extended payback periods. After-tax cash flows are taken into consideration only for the calculation of payback periods. Now, go through the steps below carefully to **Calculate Payback Period **in **Excel**.

### STEP 1: Input Data in Excel

- First, we have to input data.
- In this example, we’ll type
**Cash Inflows**and**Cash Outflows**of**6 years.** - See the picture below.

**Read More: ****How to Calculate Payback Period with Uneven Cash Flows**

### STEP 2: Calculate Net Cash Flow

- Here, we’ll calculate the net/
**cumulative cash flow**. - For this reason, select cell
**E5**. - Then, type the formula:

`=C5-D5`

- Subsequently, press
**Enter**. - After that, use
**AutoFill**to complete the rest.

**Read More: ****How to Calculate Operating Cash Flow in Excel (2 Easy Ways)**

### STEP 3: Determine Break-Even Point

The point of no profit and no loss is the break-even point. We obtain the break-even point of a project when the net cash flows exceed the initial investment. So, learn the process to determine the break-even point.

- Firstly, select cell
**D12**. - Insert the formula:

`=COUNTIF(E5:E10,"<0")`

**The COUNTIF function**counts the number of years where the**net cash flow**is negative.- Consequently, press
**Enter**to get the break-even point.

**Read More: ****How to Create Cash Flow Statement Format in Excel**

**Similar Readings**

**How to Create Cash Flow Projection Format in Excel****Calculate Present Value of Future Cash Flows in Excel****Prepare Daily Cash Flow Statement Format in Excel****How to Apply Discounted Cash Flow Formula in Excel**

### STEP 4: Retrieve Last Negative Cash Flow

If our dataset is large, we won’t be able to find the last negative cash flow manually. We’ll use **the VLOOKUP function** to retrieve that value easily.

- For that purpose, click cell
**D13**. - Here, input the formula:

`=VLOOKUP(D12, B5:E10, 4)`

- Afterward, press
**Enter**.

**Read More: ****Create Cash Flow Statement Format Using Direct Method in Excel**

### STEP 5: Find Cash Flow in Next Year

Similarly, we’ll look for the cash flow (**In**) which we have after that last negative cash flow.

- Choose cell
**D14**. - Type the formula:

`=VLOOKUP(D12+1, B5:E10, 2)`

- Hence, press
**Enter**to return the result.

**Read More: ****Create Cash Flow Statement Format with Indirect Method in Excel**

### STEP 6: Compute Fraction Year Value

We’ll insert **the ABS function** as the fractional value of a year can’t be negative.

- First of all, select cell
**D15**. - Then, insert the formula:

`=ABS(D13/D14)`

- Subsequently, press
**Enter**.

**Similar Readings**

**Cash Flow Statement Format in Excel for Construction Company****How to Calculate IRR in Excel for Monthly Cash Flow (4 Ways)****Create Monthly Cash Flow Statement Format in Excel****How to Calculate Future Value of Uneven Cash Flows in Excel**

### STEP 7: Calculate Payback Period

Finally, we’ll calculate the payback period.

- In this regard, click cell
**D16**. - Now, type the formula:

`=D12 + D15`

- Next, press
**Enter**. - Thus, you’ll get the accurate payback period in years.

- However, it can be confusing to see
**25**years as a year should be an integer value. - To convert it to months, in cell
**D17**, input the formula:

`=D16*12`

- Lastly, press
**Enter**to get the output in months format.

### STEP 8: Insert Excel Chart to Get Payback Period

Moreover, we can insert charts to get the **Payback Period**.

- Choose the ranges
**B5:B10**and**E5:E10**at first.

- Now, go to
**Insert**➤**Line Chart**➤**2-D Line Chart with Markers**.

- As a result, it’ll return a line chart as shown below.
- In that chart, you’ll see the approximate value where it crosses the
**X-axis**. - That is the payback period.
- But with this chart, we can’t get the exact value as we have shown earlier.

### Final Output

Therefore, our **Payback Period **calculating template in **Excel **is ready to demonstrate. Look at the following picture where our final output is displayed.

## Conclusion

Henceforth, you will be able to** Calculate Payback Period **in **Excel **following the above-described procedures. Keep using them and let us know if you have more ways to do the task. Follow **the ExcelDemy** website for more articles like this. Don’t forget to drop comments, suggestions, or queries if you have any in the comment section below.

Hello, the computation of the fraction year value doesn’t work if the first positive CF has a smaller absolute value than the last negative CF. How do I adjust the formula?