What is Payback Time?
The Rule #1 Payback Time calculator estimates the number of years it would take the earnings of the company to cover the cost of the stock price. It gives you a sense, as an owner, of how long it would take you to get your investment back, based on the company's historical earnings stream.
The Payback Time is:
Where prompted, enter the following numbers into the calculator:
Earnings Per Share - enter the trailing 12 months EPS. If earnings are negative, find the last annual EPS that was positive (or determine what you think the next positive annual EPS will be).
Earnings Growth Rate - enter the rate at which you think the earnings of the company and the value of the company will grow into the future. This is the rate at which the EPS will be grown to determine Payback Time.
Stock Price - enter the price at which you would like to purchase the stock. The higher the stock price is, the higher the Payback Time will be. Play around with the stock price to see what amount you can pay in order to get a Payback Time that is less than 8 years.
Return on Invested Capital
This helps you determine how well a company is reinvesting its capital.
Calculate ROIC