The Profitability Index

The Profitability Index (PI) is a financial metric used to evaluate the attractiveness of an investment. It compares the present value of expected future benefits (cash inflows) to the initial cost (cash outflow). A PI greater than 1 indicates the project is expected to generate more value than it costs, making it potentially worthwhile. Conversely, a PI less than 1 suggests the project may not be profitable. Essentially, it helps investors determine whether an investment will add value and how efficiently a project uses its resources.