MetricKitMetricKitBrowse calculators

Profitability Index Calculator

Calculate profitability index (PI) from discounted cash flows and estimate the max investment for a target PI.

Profitability index (PI) is value per dollar invested: PV of cash inflows divided by initial investment.

PI is helpful when capital is constrained because it lets you rank projects by value efficiency.

Prefer an explanation- Read the guide.
Related definitions:profitability indexnpvdiscount ratemarr
Investment decision metrics: NPV vs IRR vs payback vs PICapital budgeting hub: NPV, IRR, payback, and investment decisionsDiscount rate: how to choose it for NPV and DCFIRR (Internal Rate of Return): definition, formula, and how to use it
 
$
 
$
 
 
%
 
Tip: you can type commas (e.g., 10,000).

Example

Using the default inputs, the result is:
1.7x
Initial investment (upfront)
$100,000
Annual cash flow
$30,000
Years
10
Discount rate (MARR)
12%
Target PI (optional)
1.2

How to calculate

  1. Enter the initial investment and annual cash flow.
  2. Enter years and your required return (discount rate).
  3. Review PV inflows, PI, and the implied NPV.
  4. Optional: set a target PI to estimate max acceptable investment.

Formula

PI = PV(inflows) / initial investment; NPV = PV(inflows) - investment
  • Cash flows are annual and occur at the end of each year.
  • Uses a constant annual cash flow for simplicity.
  • Discount rate reflects required return for the project.

FAQ

Is PI better than NPV-
PI is a ratio, so it helps rank projects when capital is constrained. NPV is still the best measure of total value created.
What PI should I target-
PI > 1 means positive NPV. Higher targets (e.g., 1.1 to 1.3) add buffer for uncertainty and risk.

Common mistakes

  • Ignoring scale: a smaller project can have higher PI but lower total value.
  • Using a discount rate that does not reflect project risk.
  • Mixing real vs nominal cash flows and rates.

Related calculators

Finance
Deferred Revenue Rollforward Calculator
Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
Finance
Break-even Revenue Calculator
Estimate the revenue needed to break even given fixed costs and gross margin.
Finance
NPV Calculator
Calculate net present value (NPV) from initial investment, annual cash flow, years, and discount rate.
Finance
IRR Calculator
Estimate internal rate of return (IRR) for an investment using yearly cash flows.
Finance
Discounted Payback Period Calculator
Estimate discounted payback period using a discount rate (and compare to simple payback).
Finance
Cash Runway Calculator
Estimate runway from cash balance, revenue, gross margin, and operating expenses (optionally with revenue growth).

Quick checks

  • Use consistent time units (monthly vs annual) when entering rates and cash flows.
  • Run a sensitivity check on the input that drives the result most (often discount rate or growth).
  • Treat the output as a decision aid, not a prediction; validate assumptions with reality.