# Profitability Index Calculator

Enter your values in the Profitability Index calculator. The cash flow for each year (in the second entry box) should be separated by a comma. Example is included below.

Initial Investment (Absolute Value): Cash Flow Each Year (Separated by Comma): Discount Rate (%):

## How to use the Profitability Index Calculator

Let's suppose that you want to derive the Profitability Index, given the following information:

• The initial investment is \$1300
• The project is expected to generate:
• \$500 in year-1
• \$750 in year-2
• \$800 in year-3
• The discount rate is 7%

You may then plug the values in the calculator, and then click on the Calculate Profitability Index button:

You'll then get the Profitability Index of 1.366:

Since the Profitability Index is greater than 1, then you should invest in the project.

## How to Manually Calculate the Profitability Index

You can use the following equation to manually calculate the Profitability Index:

```                                                           NPV
Profitability Index (PI)  =  1 +    Initial investment
```

Where NPV is the Net Present Value.

Let's now see how to derive the Profitability Index, given the following information:

• The initial investment is \$1300
• The Net Present Value (NPV) is = 475.407

Plug the values in the equation, and you'll get the Profitability Index (PI) of 1.366:

```                                                           NPV                          475.407
Profitability Index (PI)  =  1 +    Initial investment   = 1 +    1300     = 1.366
```

Since the PI is greater than 1, then you should invest in the project.