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Profitability Index (PI)

Profitability index (PI) measures the present value of cash inflows per dollar invested. PI is useful when capital is constrained and you want value per dollar.

Updated 2026-01-23

Definition

Profitability index (PI) measures the present value of cash inflows per dollar invested. PI is useful when capital is constrained and you want value per dollar.

Formula

PI = PV(inflows) / initial investment

Example

If PV(inflows) is $130k and initial investment is $100k, PI = 1.30 (positive NPV).

How to use it

  • PI > 1 implies positive NPV; PI < 1 implies negative NPV.
  • Use PI to rank projects when you can't fund everything (capital rationing).

Common mistakes

  • Using PI to choose between mutually exclusive projects of different scale (compare NPV too).

Why this matters

This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.

Practical checklist

  • Write a 1-line definition for "Profitability Index (PI)" that your team will use consistently.
  • Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
  • Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
  • Use a calculator that references this term (e.g., Investment Decision Calculator) to sanity-check assumptions.
  • Read the related guide (e.g., Investment decision metrics: NPV vs IRR vs payback vs PI) for context and common pitfalls.

Where to use this on MetricKit

Calculators

Guides