Profitability Index Calculator

Calculate profitability index (PI) and NPV from initial investment, discount rate, and cash flows.

Use the Profitability Index Calculator

Enter initial investment, discount rate, and cash flows by year. PI and NPV are calculated.

Investment & cash flows

Initial investment (outflow), discount rate, and future cash inflows by year.

Initial investment ($)

Discount rate (%)

Results

Profitability index

1.48

NPV

$48,033

PI = NPV of inflows ÷ Initial investment. PI > 1 suggests value creation (NPV > 0). Accept/reject: PI > 1 = accept.

What this metric means

Profitability index measures value created per dollar of investment. It's NPV scaled by initial outlay, useful for ranking projects of different size.

How to calculate it

NPV of inflows = Σ CF_t ÷ (1 + r)^t. PI = NPV of inflows ÷ Initial investment. NPV = NPV of inflows − Initial investment.

How to improve the metric

Increase cash inflows or bring them forward; reduce initial investment; or lower the discount rate if it's appropriate (e.g. lower risk).

Common mistakes

Using undiscounted cash flows; mixing pre- and after-tax; or including financing flows in the investment or cash flows.

How to interpret your result

PI > 1: accept (value-creating). PI < 1: reject. Use with NPV for magnitude of value and with other projects when capital is constrained.

FAQs

What is the profitability index?▾

PI = NPV of future cash inflows ÷ Initial investment. PI > 1 means the project creates value (NPV > 0). PI = 1 + NPV / Investment.

How is it different from NPV?▾

NPV is in dollars; PI is a ratio. PI shows value per dollar invested, useful when capital is limited and you're ranking projects.

What discount rate should I use?▾

Use your cost of capital or hurdle rate—often WACC for the firm or a project-specific rate that reflects risk.

Accept or reject?▾

Accept if PI > 1 (equivalently NPV > 0). Reject if PI < 1. PI = 1 is indifference.

Related tools

Browse all calculators on NetGrow.

Use the Profitability Index Calculator

Enter initial investment, discount rate, and cash flows by year. PI and NPV are calculated.

Investment & cash flows

Initial investment (outflow), discount rate, and future cash inflows by year.

Initial investment ($)

Discount rate (%)

Results

Profitability index

1.48

NPV

$48,033

PI = NPV of inflows ÷ Initial investment. PI > 1 suggests value creation (NPV > 0). Accept/reject: PI > 1 = accept.

FAQs

What is the profitability index?▾

PI = NPV of future cash inflows ÷ Initial investment. PI > 1 means the project creates value (NPV > 0). PI = 1 + NPV / Investment.

How is it different from NPV?▾

NPV is in dollars; PI is a ratio. PI shows value per dollar invested, useful when capital is limited and you're ranking projects.

What discount rate should I use?▾

Use your cost of capital or hurdle rate—often WACC for the firm or a project-specific rate that reflects risk.

Accept or reject?▾

Accept if PI > 1 (equivalently NPV > 0). Reject if PI < 1. PI = 1 is indifference.