Profitability Index (PI)

Profitability Index (PI) or Benefit-Cost Ratio measures the ratio of the present value of expected cash flows of a project to its initial investment:

$$PI = \frac{\sum_{i=1}^{t}\frac {C_{i}}{(1+r)^{i}}}{C_{0}}$$

C₀— initial investment;
r— discount rate (e.g., weighted average cost of capital);
t— number of periods.

Essentially, the profitability index is a percentage or ratio form of NPV.

See also:

• Net Present Value (NPV)
• Internal Rate of Return (IRR)
• Modified Internal Rate of Return (MIRR)
• Future Value
• Present Value
• Present Value of Annuity