Profitability Ratios

I have never seen the payback method used in practice, having worked for trained financial professionals during my time working in government. I can, however, imagine some small businesses using this method. A good example I have seen in my travels might be a shopkeeper in the developing world. Such businesses usually do not have access to credit, so payback period is more relevant to their needs, as they must carefully manage their cash flow. For businesses that have access to credit facilities or equity financing, there is little need to manage cash flow so tightly that payback period would be the optimal method of making capital spending decisions.

Similarly, the internal rate of return method is seldom-used by serious financial professionals. This method focuses on the rate of return that the project generates. In some situations, there is an incentive to utilize this method in a company...
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