Profitability Index Calculator

Calculate Profitability Index (PI) for investment analysis and capital budgeting decisions

✓ Investment Analysis ✓ Capital Budgeting ✓ Project Evaluation

Profitability Index Calculator

Investment Details

Cash Flow Method

Project Information

PI Formula

Profitability Index:

PI = PV of Cash Flows ÷ Initial Investment
PI > 1.0 = Accept Project
PI < 1.0 = Reject Project

Quick Examples

Equipment Purchase
$100K investment, $25K annual returns
Technology Upgrade
Variable cash flows over 6 years
Business Expansion
$200K investment, growing returns

PI Interpretation

PI > 1.5: Excellent investment
PI 1.2-1.5: Good investment
PI 1.0-1.2: Marginal investment
PI < 1.0: Reject investment
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Understanding Profitability Index

The Profitability Index (PI) is a capital budgeting tool that measures the relationship between the present value of future cash flows and the initial investment.

  • Investment efficiency: Higher PI indicates better value per dollar invested
  • Project ranking: Compare multiple projects objectively
  • Capital rationing: Prioritize projects when funds are limited
  • Risk consideration: Incorporates time value of money

Applications

Capital Budgeting

Evaluate and rank investment projects for optimal resource allocation.

Project Comparison

Compare projects of different sizes and investment amounts.

Investment Screening

Quickly identify profitable investment opportunities.