What is the profitability index formula?

PI = PV of future cash flows ÷ initial investment, which equals 1 + NPV ÷ initial investment.

What does a profitability index of 1.2 mean?

Every 1.00 invested returns 1.20 in present value, so the project creates 0.20 of value per unit invested.

When should I use PI instead of NPV?

When capital is limited and you need to rank projects by value per unit invested. For a single accept/reject decision, NPV and PI always agree.

Can the profitability index be negative?

Only if the present value of future cash flows is negative. In practice PI is between 0 and above 1.

Profitability Index Formula and Calculator

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Profitability Index Calculator

The profitability index, also called the benefit-cost ratio or value investment ratio, divides the present value of a project’s future cash flows by its initial investment. A PI above 1 means the project returns more than it costs in present-value terms, which is the same as a positive NPV; a PI below 1 means a negative NPV.

Formula

PI = PV of future cash flowsInitial investment = 1 + NPVInitial investment

Where

PI: profitability index (benefit-cost ratio)
PV: present value of the cash flows from period 1 on, at the discount rate
NPV: net present value = PV − initial investment

Calculator

Initial investment

Cash inflows for periods 1, 2, 3, …

Separate values with commas, spaces or new lines.

Discount rate (r) (%)

Result and step-by-step solution

Profitability index

1.134

PI above 1: every 1 invested returns 1.13 in present value, so NPV is positive (6,698.93).

Discount each future cash flow
t Cash flow Discount factor Present value
1 12,000.00 0.909091 10,909.09
2 15,000.00 0.826446 12,396.69
3 18,000.00 0.751315 13,523.67
4 20,000.00 0.683013 13,660.27
5 10,000.00 0.620921 6,209.21
Sum the present values
PV = 56,698.93
Divide by the investment
PI = 56,698.9350,000.00 = 1.134

t	Cash flow	Discount factor	Present value
1	12,000.00	0.909091	10,909.09
2	15,000.00	0.826446	12,396.69
3	18,000.00	0.751315	13,523.67
4	20,000.00	0.683013	13,660.27
5	10,000.00	0.620921	6,209.21

How to use the formula

Where PI earns its keep is capital rationing. When a company has more good projects than money, ranking them by NPV alone favours large projects, while PI shows how much value each one creates per unit of capital. Choosing the highest PI projects first tends to maximise total NPV within a fixed budget, as long as projects are divisible.

The calculator discounts each inflow, sums them and divides by the investment. With 50,000 invested, the example cash flows and a 10% rate, the present value of the inflows is 56,698.93, so PI = 1.134 and NPV = 6,698.93. The identity PI = 1 + NPV ÷ investment connects it directly to the NPV formula.

Frequently asked questions

What is the profitability index formula?: PI = PV of future cash flows ÷ initial investment, which equals 1 + NPV ÷ initial investment.
What does a profitability index of 1.2 mean?: Every 1.00 invested returns 1.20 in present value, so the project creates 0.20 of value per unit invested.
When should I use PI instead of NPV?: When capital is limited and you need to rank projects by value per unit invested. For a single accept/reject decision, NPV and PI always agree.
Can the profitability index be negative?: Only if the present value of future cash flows is negative. In practice PI is between 0 and above 1.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.