What does SPP mean in ACCOUNTING

Definition

Simple Payback Period (SPP) is a measure of time usually expressed in years required to recover the initial cost of an action, investment or expenditure. The time period is calculated by dividing the amount invested into the potential returns over a set period such as one year or five years. SPP can be used to evaluate various investments and projects in order to gain an understanding as to which would yield higher returns over the shorter term. How To Calculate SPP: The calculation for Simple Payback Period is relatively straightforward, requiring only data related to the initial cost and future cash flows associated with the project or investment being evaluated. First, divide the total initial cost by the total expected return from the project or investment over a specific period. Then, deduct that figure from the current date or start date of your project/investment; this will give you your simple payback period in years (or other chosen units). Benefits Of SPP: The Simple Payback Period helps organizations make informed decisions regarding their capital allocation and other financial-related activities by providing them with information about their return on investments. It also makes comparisons between different projects easier since they can all be measured in terms of payback periods rather than ROI alone. Finally, it enables businesses to account for both short-term and long-term expenditures when making large financial decisions since if multiple projects have similar pay back periods but different ROIs then whichever has lower costs overall would likely have better outcomes over longer periods of time due to compounding interest rates etc being taken into consideration more over time instead of just initially looking at ROI alone when comparing multiple options.