Profitability Index Calculator
A capital-rationing index: PV of inflows ÷ initial outlay.
It measures PI with a clear accept / indifferent / reject rule around 1.0.
Use it to rank projects when capital is scarce and NPV alone does not order them.
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Profitability Index Calculator
PI (profitability index) = PV of inflows ÷ initial investment — rank projects when capital is scarce. Accept if PI > 1 · Indifferent if PI = 1 · Reject if PI < 1.
Illustrative sample (100k · 30k × 5 · 10%). Not financial advice.
Outlay, discount rate, and cash flows
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Profitability index
PV inflows, NPV, and PI. Accept / Indifferent / Reject as above.
Equations
- PV_Inflows = Σ CFt ÷ (1+r)t · Excel NPV(rate, CF1:CF5)
- NPV = PV_Inflows − Initial
- PI = PV_Inflows ÷ Initial · Accept if PI > 1 · Indifferent if PI = 1 · Reject if PI < 1
How this is calculated
- PI (profitability index) = PV of inflows ÷ Initial investment
- PV of inflows = Excel-style NPV(rate, CF1:CF5) — first CF end of period 1
- NPV = PV_Inflows − Initial
- Accept when PI > 1 · Indifferent when PI = 1 · Reject when PI < 1 (creates value per dollar invested when Accept; useful when several positive-NPV projects compete for limited capital)
Illustrative — not financial advice. NPV gives absolute $; PI ranks relative bang-for-buck.
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