The profitability index compares the present value of future cash flows with the initial outlay.
Profitability Index Calculator
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Profitability index (PI)
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Table of Contents
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What is Profitability Index?
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How to Use This Calculator
- Enter or select Initial investment, PV of future cash flow.
- Check the unit beside each measurement. For a percentage or rate, use the scale and time period stated in the form.
- Choose Calculate, then compare the output with the formula and example below. If you change a value or option, calculate again to update the result.
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Formula Used
PI = PV of future cash flows/initial investment
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Variables Explained
| Input | What it means |
|---|---|
| Initial investment | The starting capital outlay before any separately entered fees or future contributions. |
| PV of future cash flow | Cash generated or used in the stated reporting period, rather than an accrual-accounting profit. |
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Worked Example
Cash flows worth 120,000 today against an outlay of 100,000 give PI=1.2.
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Why Use This Calculator?
Compare the result with the underlying statement, budget or proposed transaction. It is most useful when every amount uses the same reporting period and the same accounting definition.
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Common Mistakes
- The result depends on the discount rate used to obtain the present value.
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Frequently Asked Questions
Should I use monthly or annual figures?
Use one consistent period for every amount and rate in the relationship. If a form specifies an annual rate or a monthly amount, follow that label rather than mixing time periods.
Does the result include fees and tax?
Only the costs and taxes represented by the inputs and formula are included. A real transaction can include other charges, so compare the estimate with the underlying agreement or statement.
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Sources & References
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