Endurgreiðslutímans

Endurgreiðslutímans is an Icelandic term that translates to "repayment period" or "payback period" in English. It refers to the length of time required for the cumulative net cash flows from an investment or project to equal the initial investment. This metric is commonly used in financial analysis to evaluate the risk and liquidity of an investment.

The calculation of the endurgreiðslutímans involves summing the expected cash inflows from an investment year by year until the total cash inflows match the initial outlay. Shorter endurgreiðslutímans is generally preferred as it indicates a quicker recovery of the invested capital, implying lower risk and greater liquidity.

While the endurgreiðslutímans is a simple and intuitive measure, it has limitations. It does not consider cash flows that occur after the payback period, nor does it account for the time value of money, meaning it doesn't discount future cash flows to their present value. Therefore, it is often used in conjunction with other investment appraisal techniques, such as net present value (NPV) and internal rate of return (IRR), to provide a more comprehensive assessment of an investment's viability. In some contexts, particularly for smaller or less complex projects, the endurgreiðslutímans can be a sufficient decision-making tool.