Profitability Index (PI) Calculator
Assess the financial viability of investment proposals. Calculate the ratio of the present value of future cash inflows to the initial investment capital.
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Profitability Index (PI) Ratio
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Enter parameters on the left to calculate profitability ratio.
*Values > 1.00 suggest the project is financially acceptable.
Present Value of Inflows (PV):
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Initial Outlay Cost:
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Net Present Value (NPV):
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Initial Outlay vs PV Inflow worth
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Understanding Profitability Index (PI)
The Profitability Index (PI), also known as the value investment ratio or profit inflation limit, is a capital budgeting tool that evaluates the relation between the costs and benefits of a projected proposal. PI is particularly useful under capital rationing scenarios when budget capital is finite and managers must rank multiple viable options.
How the Profitability Index is Calculated
PI = Present Value of Inflows / Initial Outlay
Alternatively, it can be derived directly from the Net Present Value (NPV):
PI = 1 + ( NPV / Initial Outlay )
Decision Criteria Rules:
- PI > 1.00: The project generates positive net value. Accept proposal.
- PI = 1.00: The project breaks even. Net value added is zero. Indifferent.
- PI < 1.00: The project costs more than the present value of its inflows. Reject proposal.