Payback Time Calculator
Determine how many years it will take for a company's earnings to cover your stock purchase cost.
Or use Stock Price × Shares
Operating CF - CapEx
Payback Time
— years
What is Payback Time?
Payback Time is a valuation method from Phil Town's book "Payback Time" that calculates how many years it would take for a company's free cash flow to equal the price you paid for the stock. Think of it as: "If I owned the whole company, how long until the business pays me back?"
Rule #1 Guideline
Look for companies with a Payback Time of 10 years or less. The shorter the payback time, the better the value. A payback time under 8 years is excellent.
How It Works
- Start with the company's current free cash flow
- Project future free cash flow using the growth rate
- Add up cumulative free cash flow each year
- Count the years until cumulative FCF equals the market cap
Free Cash Flow Formula
Free Cash Flow = Operating Cash Flow − Capital Expenditures
Why Payback Time Matters
- • Owner's Perspective: Treats the stock purchase like buying the entire business.
- • Cash Focus: Uses free cash flow, which is harder to manipulate than earnings.
- • Simple to Understand: Easy to compare across different companies and industries.
Master Payback Time Investing
Learn advanced valuation techniques in Phil Town's free investing workshop.
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