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Profitability Index Calculator

Divide the present value of inflows by the investment to rank projects under a capital constraint.

About Profitability Index Calculator

A profitability index above one is equivalent to a positive NPV. Its advantage appears under capital rationing, where the goal is maximum value per unit of scarce capital rather than maximum total value. Ranking by NPV alone favours large projects; ranking by profitability index allocates a fixed budget to the projects that use it most efficiently.

Formula

Profitability Index

Profitability index = present value of inflows ÷ initial investment

profitability index
Value per unit of capital, the right ranking measure when capital is scarce

Worked example

With the default values below, Profitability Index Calculator returns Profitability Index of 1.0614. Change any input above and every figure here is recalculated in your browser.

Inputs used

Initial investmentminimum 0.01
100,000
Annual cash inflowminimum 0
28,000
Discount rateaccepts 0–100 %
10 %
Project lifeaccepts 1–50 years
5 years

Results

Profitability Index
1.0614
Present Value of the Inflows
$106,142.03
Net Present Value
$6,142.03
Value Created per Unit Invested
$0.0614
Verdict
Accept — creates 0.06 of value per unit invested

Step by step

  1. 1Values used
  2. 2Profitability Index
  3. 3Profitability Index= 1.0614
  4. 4Present Value of the Inflows= 106,142.03
  5. 5Net Present Value= 6,142.03
  6. 6Value Created per Unit Invested= 0.0614
  7. 7Verdict= Accept — creates 0.06 of value per unit invested

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, tax or fees or charges into account.
  • Figures are rounded for display to 4 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

How is Profitability Index calculated?

Profitability index = present value of inflows ÷ initial investment A profitability index above one is equivalent to a positive NPV. Its advantage appears under capital rationing, where the goal is maximum value per unit of scarce capital rather than maximum total value.

Why does Profitability Index matter?

Ranking by NPV alone favours large projects; ranking by profitability index allocates a fixed budget to the projects that use it most efficiently.

What values do I need to enter?

This calculator takes 4 inputs: Initial investment, Annual cash inflow, Discount rate, Project life. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.

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