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Profitability Index Calculator

Find an investment's profitability index.

How it is calculated

You supply two amounts that are already in today's money: the present value (PV) of the future cash flows and the initial investment. The tool then computes:

PI = PV / investment and NPV = PV − investment

The index is rounded to four decimals. The tool does not discount cash flows itself, so you must discount them first at your chosen rate. The investment has to be above zero and PV cannot be negative; otherwise no result is shown. A PI above 1 means a positive NPV, exactly 1 means break-even, and below 1 means the project destroys value (the NPV then appears with a minus sign).

Worked example

A project costs 120,000 today, and its future cash flows, discounted at your required rate, add up to a present value of 138,500. PI = 138,500 / 120,000 = 1.1542. NPV = 138,500 − 120,000 = $18,500.00. Each dollar invested returns about $1.15 in present-value terms. With a PV of only 90,000 the index would be 0.7500 and the NPV -$30,000.00, a reject.

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Common mistakes

  • Entering the sum of undiscounted future cash flows as PV; the figure must already be discounted, otherwise PI is overstated.
  • Subtracting the investment from the PV before entering it. That is the NPV; PV here is the gross present value of inflows.
  • Treating PI above 1 as enough when capital is rationed; rank projects by PI, but also check that the chosen set fits the budget.
  • Confusing PI with a percentage return: 1.1542 is a ratio, not 115.42% profit.
  • Putting the investment as a negative number; it is entered as a positive amount.

Sources

About this calculator

The profitability index (PI = present value of future cash flows ÷ initial investment) restates net present value as a ratio rather than a dollar amount: PI = 1 + NPV/investment, so any project with PI above 1 has a positive NPV and is theoretically worth pursuing. Because it's normalized per dollar invested, PI lets you compare projects of very different sizes on equal footing.

Corporate finance teams and capital-budgeting analysts use the profitability index specifically when capital is rationed — when there isn't enough budget to fund every project with positive NPV — ranking candidates by PI to find the combination that maximizes total value for a limited investment pool. It's a standard tool alongside NPV and IRR in MBA finance courses and corporate investment-committee decision packs.

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