Profitability Index Calculator

PI = (NPV + initial) / initial = PV of future flows / initial investment. >1 = accept.

Inputs

Result

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How to use this calculator

  • Enter initial investment, discount rate, and cash flows.
  • Read PI; >1 means accept.

About this calculator

Profitability index (also called benefit-cost ratio) measures the value created per dollar invested. PI > 1 means present value of future flows exceeds initial cost — same conclusion as positive NPV. Useful for ranking projects under capital constraints (highest PI per dollar wins).

Frequently asked

PI vs NPV — when do they differ?+
They give the same accept/reject decision. PI ranks differently for capital rationing because it normalizes by investment size.
When use PI vs NPV for ranking?+
When capital is rationed (limited budget), pick highest PI projects until budget exhausted. Without rationing, NPV ranks correctly.
Can PI be negative?+
PI is a ratio of two positive numbers (PV of flows over initial). It can be < 1 (NPV negative) but not negative. NPV can be negative.
PI vs IRR for ranking?+
IRR ignores project scale (a 100% return on $100 ranks same as on $1M). PI captures scale.
Real-world use?+
Government project selection, R&D portfolios, capital-constrained startups choosing among initiatives.

Related calculators

NPV (Net Present Value) Calculator
NPV = sum of discounted future cash flows minus initial investment. Positive NPV = accept project.
IRR (Internal Rate of Return) Calculator
IRR = the discount rate that makes NPV = 0. Solved numerically via Newton's method.
MIRR (Modified IRR) Calculator
IRR with explicit reinvestment-rate assumption. Avoids the multiple-IRR problem.
Payback Period Calculator
How many years until cumulative cash flows equal the initial investment.
Discounted Payback Period Calculator
Years for discounted cash flows to recoup initial investment. Time-value-aware variant of payback.
Present Value Calculator
PV = FV / (1 + r)^n. The current worth of a future cash flow.

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