Payback Period

The Payback Period (PP) is perhaps the simplest method of looking at one or more investment projects or ideas. The Payback Period method focuses on recovering the cost of investments. PP represents the amount of time that it takes for a capital budgeting project to recover its initial cost.

The Payback Period Calculation is as follows:

The Costs of Project / Investment

PP = ----------------------------------------

Annual Cash Inflows

The PP concept holds that all other things being equal, the better investment is the one with the shorter payback.

Price to Earnings ratio ( P / E ratio)

The Price to Earnings ratio (P/E ratio) is a valuation ratio of a company's current share price compared to its per-share earnings.

The P/E ratio is used for measuring market performance and can be calculated as:

P/E ratio = Market Value Per Share / Earnings Per Share

For example, a company that earned $10M last year, with a million shares outstanding, had earnings per share of $10. If that company's stock currently sells for $100 per share, it has a P/E of 10.