Profitability Index

The Profitability Index (PI) is a financial metric used to assess the attractiveness of an investment or project. It’s calculated by dividing the present value of expected future cash inflows generated by the project by the initial investment cost. A PI greater than 1 indicates that the project’s expected benefits outweigh its costs, making it potentially worthwhile. Conversely, a PI less than 1 suggests the project may not generate enough returns to justify the investment. It helps with comparing multiple investment opportunities to determine which offers the best relative profitability.