Corporate finance
Profitability Index Calculator
Compare the PV of future inflows with the initial outlay and view NPV.
Results
Enter values and press Calculate to see an explanation.
Result interpretation
PI above one means discounted inflows exceed the outlay; one means equal value; below one means a shortfall.
Read the learning guide →FORMULA
Formula
PI is the present value of future nonnegative inflows divided by the initial outlay.
Formula and assumptions
CFₜ is a nonnegative year-end inflow, r is a constant annual discount rate, and the initial outlay must be positive. Later outlays require NPV or a revised denominator.
WORKED EXAMPLE
Example
- Enter an outlay of 1,000, a 10% discount rate, and two inflows of 600.
- PV of inflows = 600/1.1 + 600/1.1² ≈ 1,041.32.
- PI ≈ 1.041 and NPV ≈ 41.32.
Frequently asked questions
What does PI = 1 mean?
At the selected discount rate, inflow PV equals the initial outlay and NPV is zero.
Why use PI under capital rationing?
PI shows discounted inflows per unit of initial capital, useful for comparing capital efficiency alongside scale, dependencies, and constraints.
Can I enter later additional outlays?
This version treats the initial outlay as the only cost; future rows must be nonnegative inflows. Use NPV for later outlays.