Profitability Index Calculator
Measure investment efficiency by comparing present value of returns to cost.
Can't find what you need?
Request a ToolHow to Use the Profitability Index Calculator
The profitability index (PI) measures the ratio of the present value of future cash flows to the initial investment. A PI greater than 1.0 means the investment creates value:
- Enter the initial investment amount.
- Enter the discount rate (required return).
- Enter expected annual cash flows.
About Profitability Index
PI = PV of Future Cash Flows / Initial Investment. A PI above 1.0 means the investment's returns exceed its cost in present value terms. Unlike NPV (which gives a dollar amount), PI gives a ratio, making it useful for comparing projects of different sizes. A PI of 1.5 means you get $1.50 of present value for every $1 invested.
Frequently Asked Questions
What is a good profitability index?
Any PI above 1.0 indicates the investment creates value. Higher is better. A PI of 1.0 means you break even. Below 1.0 means the investment destroys value.
How is PI different from NPV?
NPV gives the total dollar value created. PI gives a ratio of value to cost. PI is better for comparing projects of different sizes because it normalizes by investment amount.
When should I use profitability index?
Use PI when comparing multiple investment opportunities with limited capital. It helps rank projects by efficiency, showing which ones give you the most value per dollar invested.
Can PI be negative?
PI is always positive or zero (assuming positive initial investment). If cash flows are negative, the PV of cash flows could be negative, but in typical usage with positive expected returns, PI ranges from 0 upward.