A worked example: ₹8,00,000 recovered in 3.64 years
An ₹8,00,000 shop renovation generating ₹2,20,000 a year for 5 years has a real payback period of 3.64 years, with the investment recovered. After year 3, cumulative cash flows are ₹6,60,000 — ₹1,40,000 short of the ₹8,00,000 initial investment. That shortfall, divided by the ₹2,20,000 flowing in during year 4, gives a fraction of 0.636, so recovery lands at period 3 + 0.636, rounded to 3.64.
The formula: cumulative cash flow versus initial investment
The calculator walks through each cash flow, adding it to a running total, until that total meets or exceeds the initial investment. In the recovery period itself, it interpolates linearly: remaining amount still owed, divided by that period's cash flow, gives the fractional part of the period. For the ₹8,00,000 example, the remaining ₹1,40,000 divided by ₹2,20,000 is exactly 0.6363..., which the calculator rounds to two decimal places as 0.64, for a final payback period of 3.64.
Two more real outcomes: an exact boundary and no recovery at all
A ₹3,00,000 investment returning ₹1,00,000 a year for exactly 3 years has a real payback period of precisely 3, with recovery flagged true — cumulative cash flow hits ₹3,00,000 on the last cash flow with nothing left over, so the interpolation fraction is exactly 0, and the period count alone is the answer. By contrast, a ₹12,00,000 investment paid back only ₹1,50,000 a year for 3 years — ₹4,50,000 total — leaves the calculator reporting a payback period value of 3 (the number of cash flows supplied) but with recovered marked false, since cumulative inflows never reached the ₹12,00,000 investment at all.
Why the recovered flag matters as much as the number
A payback period number on its own can be misread as an answer even when the investment was never actually recovered within the cash flows entered — the ₹12,00,000 example above would otherwise look like a normal 3-period payback rather than a shortfall. Checking the recovered flag alongside the period count is what distinguishes "paid back during period 3" from "still hasn't paid back after 3 periods," two very different outcomes that can otherwise produce a similar-looking number.