Investment analysis is performed with the use of various financial measures to find an investor's return on investment. Here, we will explore finding payback period which is one of the discounted cash flow techniques that helps us analyze investments. The payback period is defined as the time period required to recover just the initial cost of the project.
Spreadsheet programs are commonly and often used for financial analysis and in this respect you will be informed about the availablity of a simple payback period spreadsheet function called tadPP. The tadPP function may be typed in to a worksheet cell of various offline and web based spreadsheet programs. Excel, OpenOffice calc, LibreOffice calc, IBM Symphony spreadsheet, Office 365 (Web version), and Google Docs spreadsheet are some of the popular spreadsheet programs that support the use of tadPP to find simple payback period.
There are four different Excel payback period functions namely tadPP, tadXPP, tadTPP, and tadXTPP that may be used as worksheet cells in Excel 2007, 2010 and 2013 to find the payback period. Each of these financial functions return distinct results depending on the data that is entered. We will briefly introduce each of these functions in the following paragraphs.
The tadPP is used to calculate the simple payback period when cash flows are entered and we require to know the time period needed to recover the cash flows. We will be able to specify whether the payments begin immediately or it they begin at the end of first period. You will also be able to define the length of the period, for example, we can say that each of the period is a year, half year, quarter, month, fortnight, week, day or even an hour. The payback period return by tadPP function will be an annualized payback period.
When it is required to know the time period needed to recover all costs not just the initial cost then you would have to use the tadTPP function. This function will find the actual, true or real payback period. The other options you can specify with this function are the same as those we discussed with tadPP.
If the cash flows have a corresponding date schedule then you may opt to use tadXPP function to calculate the time required to recoup the initial cost of the project.
And if you required to find the real payback period when you have cash flows and a series of dates then you will have to use the tadXTPP function. You will have to enter the series of cash flows and the date schedule to get the results.
tadPP family of Excel financial functions are part of tadXL add-in that may be installed with Excel 2007, 2010 and 2013 on computers running Windows operating systems. More details about each of the functions may be found at tadxl.com.