Profitability index (PI) Formula

ΣR= Sum of all Future Cash Flows

n = Number of periods or years

i = Interest rate or rate of return

Io = Initial Investment


Profitability index is defined as the present value of the future cash flows divided by the initial investment.

Rules for selection or rejection of a project:
  • If PI > 1 then accept the project
  • If PI < 1 then reject the project