Profitability Index Calculator
The profitability index measures the value a project creates for each dollar invested. Enter the present value of the project's future cash flows and the initial investment, and the calculator returns the profitability index along with the net present value. A profitability index above 1 signals a value-adding project; below 1 signals one that destroys value. It is especially useful for ranking projects when your investment budget is limited.
Profitability index formula
Profitability index = PV of future cash flows / initial investment
Net present value = PV of future cash flows - initial investment
Accept if PI > 1 (equivalently, NPV > 0)
Both inputs are positive dollar amounts. The present value of future cash flows should already be discounted at your required rate of return.
Worked example
PV of future cash flows $120,000, initial investment $100,000:
- Profitability index = 120,000 / 100,000 = 1.20.
- Net present value = 120,000 - 100,000 = $20,000.00.
- Signal: accept (PI above 1).
Profitability index: frequently asked questions
What is the profitability index?
The profitability index (PI), also called the benefit-cost ratio, is the present value of a project's future cash flows divided by its initial investment. PI = present value of future cash flows / initial investment. A PI above 1 means the project creates value; below 1 means it destroys value.
How does PI relate to net present value?
They give the same accept-or-reject signal: a PI above 1 corresponds to a positive net present value (NPV), and a PI below 1 to a negative NPV. PI expresses value created per dollar invested, which is useful for ranking projects when capital is limited, while NPV gives the absolute dollar gain.
What PI value means a project is worth doing?
A PI greater than 1 indicates the present value of future cash flows exceeds the initial outlay, so the project adds value. A PI of exactly 1 breaks even. When choosing among projects under a budget, higher PI projects are generally preferred because they deliver more value per dollar invested.
Does PI use discounted cash flows?
Yes. The numerator is the present value of future cash flows, meaning they have already been discounted at the required rate. This calculator takes that present value as an input. To compute the present value first, use a net present value or present value calculator.
Official sources
- U.S. Securities and Exchange Commission, Investor.gov: Present Value.
- U.S. Securities and Exchange Commission, Investor.gov: Compound Interest Calculator.
Reviewed by the CalculatorHub team, edited by James Graham, 19 June 2026. See our methodology.