# Profitability Index Calculator

URL: https://speedycalculator.com/calculators/finance/profitability-index/
Last updated: 2026-10-25

> The profitability index calculator divides the present value of an investment's future cash flows by its initial cost, so you can rank projects by value created per dollar invested.

## Inputs

- Initial investment
- Future cash flows
- Present value of future cash flows
- Discount rate (%)
- Cash flow in each year

## Results

- Present value of cash flows
- Profitability index
- Net present value
- Decision

## Formula

```
PI = PV of future cash flows ÷ initial investment
PV = Σ CFₜ ÷ (1 + r)^t
NPV = PV − initial investment
```

## Explanation

A profitability index above 1 means the project earns more than its cost of capital (positive NPV). When capital is limited, ranking projects by PI helps choose the combination that creates the most value.

### How to use the Profitability Index Calculator

- **Initial investment**
- **Future cash flows**
- **Present value of future cash flows**
- **Discount rate**
- **Cash flow in each year**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the initial investment and either the present value of future cash flows, or the discount rate and yearly cash flows.

### Tips

- Use figures for the same period (a month, a quarter or a year) for every input so ratios compare like with like.
- Track the metric over time – the trend usually tells you more than a single value.
- Compare your result with industry benchmarks, which vary a lot between sectors.
- Treat the result as a starting point for a decision, then check the assumptions behind each input.

### Common mistakes to avoid

- Mixing monthly and yearly numbers in the same calculation.
- Using revenue where the formula needs profit (or the other way round).
- Forgetting hidden costs such as taxes, fees, overheads or your own time.

### Inputs explained

FieldWhat to enterInitial investmentAmount in your currencyFuture cash flowsChoose one: I know their present value, Calculate from yearly cash flowsPresent value of future cash flowsAmount in your currencyDiscount rateIn %Cash flow in each yearA list of numbers separated by commas, spaces or new lines

### What each result means

- **Profitability index** = [Present value of cash flows]÷[Initial investment]
- **Net present value** = [Present value of cash flows] - [Initial investment]

### Example values

How the main result changes when **Initial investment** changes and everything else stays at the example values above:

Initial investmentProfitability index50,0002.38375,0001.589100,0001.192125,0000.953150,0000.794200,0000.596

## Worked example

Inputs — Initial investment: $100,000; Future cash flows: Calculate from yearly cash flows; Present value of future cash flows: $120,000; Discount rate: 10 %; Cash flow in each year: 30000, 35000, 40000, 30000, 20000.

Results — Present value of cash flows = $119,159.77; **Profitability index = 1.192**; Net present value = $19,159.77; Decision = Accept – creates value.

## FAQ

**What is a good profitability index?**
Anything above 1; the higher, the more value per dollar invested.

**How is PI related to NPV?**
PI > 1 exactly when NPV > 0.

**When is PI better than NPV?**
When capital is rationed and you must rank projects of different sizes.

**What formula does the Profitability Index Calculator use?**
PI = PV of future cash flows ÷ initial investment.


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)