Profitability Index Calculator

Q: What is a good profitability index?

A PI above 1 indicates the investment generates more value than its cost. Higher PI values are better, and when comparing multiple projects, choose the one with the highest PI above 1.

Q: How is PI different from NPV?

NPV gives the absolute dollar value of value created, while PI gives the ratio of value created per dollar invested. PI is useful when comparing projects of different sizes.

Q: Can PI be negative?

PI is always positive since it's a ratio of present values. However, a PI below 1 means the investment destroys value (negative NPV) and should be rejected.

Use our free profitability index calculator to determine the ratio of present value of future cash flows to the initial investment. A PI > 1 indicates a profitable investment opportunity.

Financial

Currency

Initial Investment

Annual Cash Flow

Discount Rate (%)

Number of Years

years

Formula

The Profitability Index (PI), also known as the benefit-cost ratio, measures the ratio of the present value of future cash flows to the initial investment. A PI greater than 1 indicates a profitable investment.

PI = PV of Future Cash Flows / Initial Investment

Percentage: The percentage value you want to apply

Number: The original number or value

Result: The calculated result

How It Works

1Enter the initial investment amount required for the project.
2Enter the expected annual cash flows from the investment.
3Set the discount rate reflecting the cost of capital.
4Specify the number of years the investment will generate cash flows.
5A PI > 1 means the investment generates value; PI < 1 means it destroys value.

Examples

$100,000 investment with $25,000 annual cash flow for 5 years at 10% discount rate

1.PV = $25k/(1.1)^1 + $25k/(1.1)^2 + ... + $25k/(1.1)^5
2.PV = $94,769
3.PI = $94,769 / $100,000 = 0.948

Result: 0.948

Frequently Asked Questions

A PI above 1 indicates the investment generates more value than its cost. Higher PI values are better, and when comparing multiple projects, choose the one with the highest PI above 1.

NPV gives the absolute dollar value of value created, while PI gives the ratio of value created per dollar invested. PI is useful when comparing projects of different sizes.

PI is always positive since it's a ratio of present values. However, a PI below 1 means the investment destroys value (negative NPV) and should be rejected.

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Profitability Index Explained

CalculateMe Team

Last updated: 2026-07-16

How It Works

1Enter the initial investment amount required for the project.

2Enter the expected annual cash flows from the investment.

3Set the discount rate reflecting the cost of capital.

4Specify the number of years the investment will generate cash flows.

5A PI > 1 means the investment generates value; PI < 1 means it destroys value.

Frequently Asked Questions

A PI above 1 indicates the investment generates more value than its cost. Higher PI values are better, and when comparing multiple projects, choose the one with the highest PI above 1.

NPV gives the absolute dollar value of value created, while PI gives the ratio of value created per dollar invested. PI is useful when comparing projects of different sizes.

PI is always positive since it's a ratio of present values. However, a PI below 1 means the investment destroys value (negative NPV) and should be rejected.

Profitability Index Calculator

Formula

How It Works

Examples

$100,000 investment with $25,000 annual cash flow for 5 years at 10% discount rate

Frequently Asked Questions

What is a good profitability index?

How is PI different from NPV?

Can PI be negative?

Related Calculators

Related Articles

Profitability Index Calculator

Formula

How It Works

Examples

$100,000 investment with $25,000 annual cash flow for 5 years at 10% discount rate

Frequently Asked Questions

What is a good profitability index?

How is PI different from NPV?

Can PI be negative?

Related Calculators

Related Articles