Two projects can have the identical positive NPV in dollars while needing very different amounts of upfront capital — the profitability index reveals which one actually delivers more value per dollar invested.
How it works
Dividing the present value of a project’s future cash flows by its initial investment gives the profitability index — a PI above 1.0 always corresponds to a positive NPV at the same discount rate.
What this does not include
This does not include the full capital-rationing optimization problem, where a company selects the combination of projects that maximizes total value subject to a limited capital budget — PI is one key input to that decision, not the complete answer.
How to use this calculator
- Enter the initial investment, expected cash flows, and discount rate.
Frequently asked questions
When would PI and NPV give conflicting project rankings?
When comparing projects of very different sizes — the larger project might have a higher absolute NPV while a smaller project has a higher PI, a classic capital-budgeting tension when capital is limited.
What does a PI of exactly 1.0 mean?
The project exactly breaks even at the given discount rate — identical to an NPV of exactly $0.
Is PI the same thing as ROI?
No — ROI typically compares total (undiscounted) return to cost; PI specifically compares the *present value* of future cash flows to the initial investment, properly accounting for the time value of money.
