Despite its simplicity, the payback period has several limitations:
Ignores Time Value of Money: The payback period does not take into account the time value of money, which can lead to inaccurate assessments of an investment's profitability. Excludes Cash Flows Beyond Payback: It ignores any cash flows that occur after the payback period, potentially missing out on the long-term benefits of an investment. No Risk Adjustment: The metric does not adjust for the risk associated with different cash flows, making it less reliable for high-risk investments.