payout

Payout

1. The financial return that is expected from an investment over a given period of time. Payout may be expressed on an overall or periodic basis as either a percentage of the investment's cost or in a real dollar amount.

2. The period of time that an investment is expected to take to break even and become minimally profitable.

Short for "time to payout", "term to payout" or "payout period".

Investopedia Commentary

1. The expected payout per year of an investment is commonly used, but is not necessarily a comprehensive or reliable method for evaluating an investment's worth. Many technologically innovative companies have a tendency to be very undervalued early on, but their value appreciates tremendously when the technology they are selling gains market acceptance.

2. The term to payout or payout is often used to evaluate capital-intensive investments such as mining, drilling for oil or building a restaurant. These kinds of investments usually have very high initial costs but earn predictable revenues for a number of years. For example, consider an investment decision maker faced with the choice of building an oil well. He or she will likely want to know the payout term for such an investment in order to incorporate it into the project's financial model. This will help to determine the risk/reward tradeoff involved in the investment decision.

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See also: Outlay Cost, Payout Phase, Payout Ratio, Return, Term

Also spelled: pay out, term to pay out, pay out period, time to pay out