- Home
- Data Visualization
- Tools
- Excel Formula Generator
- Excel Formula Explainer
- Google Apps Script Generator
- Excel VBA Script Explainer
- Excel VBA Script Generator
- Excel VBA Code Optimizer
- Excel VBA Code Debugger
- Google Sheets Formula Generator
- Google Apps Script Explainer
- Google Sheets Formula Explainer
- Google Apps Script Optimizer
- Google Apps Script Debugger
- Excel File Translator
- Excel Template Generator
- Excel Add-in
- Your Virtual AI Assistant For Excel Spreadsheets
- AI Answer Generator
- AI Math Solver
- AI Graph Generator
- AI SQL Generator

- Pricing
- Resources

From data to report in one minute or less. Ajelix BI is launched! 🚀 Get started for free.

- Home
- Blog
- Calculators
- Free Profitability Index Calculator Online

The profitability index calculator is a financial tool used to judge the attractiveness of an investment. It essentially compares the present value of all the future cash flows you expect to earn from an investment with the initial amount you need to put in

**PI = Present Value of Future Cash Flows / Initial Investment**

Here’s a breakdown of the formula:

**Present Value of Future Cash Flows:**This represents the current worth of all the cash inflows you expect to receive from the investment over its lifetime, considering the time value of money.**Initial Investment:**This is the upfront cost you need to incur to start the project.

Struggling with manual calculations?

Setup automatic calculations on digital dashboard and track your data regularly. Fast registration and easy setup guaranteed.

Time needed: 2 minutes

The profitability index (PI) helps you assess the attractiveness of an investment by comparing the present value of its future cash flows to the initial investment. Here’s how to calculate it:

**Gather Information****Future Cash Flows:**Estimate the net cash inflow (revenue minus expenses) you expect to receive from the investment for each year of its lifespan.**Initial Investment:**Determine the total upfront cost required to initiate the project.**Discount Rate:**Choose a discount rate that reflects the risk of the investment and the time value of money. A higher risk typically requires a higher discount rate.**Calculate the Present Value of Future Cash Flows (PV)**For each year of the investment, use the discount rate to find the present value of the expected cash flow. There are a couple of ways to do this:

**Discount Rate Formula:****PV = Cash Flow / (1 + Discount Rate)^Year**Calculate the PV for each year’s cash flow using this formula.**Financial Calculator or Spreadsheet Function:**Most financial calculators and spreadsheet programs have built-in functions to calculate present value (PV). Use these functions, entering the cash flow, discount rate, and year as arguments.**Sum the Present Values**Add up the present values you calculated for each year’s cash flow to get the total present value of all future cash flows from the investment.

**Calculate the Profitability Index (PI)**Use the following formula: PI = Total Present Value of Future Cash Flows / Initial Investment

**Interpret the PI**Aim for a score bigger than 1 as that Indicates a profitable investment. 1 will indicate a break-even point and anything below means you will lose money.

Watch a video on how to calculate this metric 👇

Score | Explanation |
---|---|

PI > 1 | Indicates a profitable investment. The present value of your future cash flows is greater than the initial investment, signifying that the project is expected to generate a return. |

PI = 1 | Implies you’ll break even on the investment. The present value of your future cash flows exactly matches the initial investment. |

PI < 1 | This suggests a disadvantageous investment. The present value of your future cash flows is less than the initial investment, indicating a potential loss |

Calculating the PI usually involves using a discount rate to find the present value of future cash flows. This discount rate reflects the risk and time value of money.

July 9, 2024

An EBITDA calculator is a tool that helps you calculate a company’s Earnings Before Interes…

July 4, 2024

An EBIT calculator is a tool that helps you calculate a company’s earnings before interest …

July 2, 2024

A business loan calculator is a tool that helps you estimate the monthly payments, total interest…

June 27, 2024

A dividend calculator is a financial tool that helps investors figure out how much money theyR…

June 25, 2024

An ROI calculator is a tool that helps you figure out the return on investment for something. ROI…

June 20, 2024

A percentage calculator is a tool that helps you with math involving percentages. It can find a p…

September 17, 2024

A well-designed online profit and loss dashboard can be a game-changer for businesses. By visuali…

September 12, 2024

IT dashboards have become indispensable tools for organizations seeking to make informed decision…

September 10, 2024

SQL dashboards give executives and business founders a powerful tool to monitor key metrics and i…

August 20, 2024

As the Chief Marketing Officer, your role drives business growth. A well-designed CMO dashboard s…

August 15, 2024

A digital HR recruitment dashboard is a centralized, interactive platform visually representing k…

August 13, 2024

An accounting dashboard is a centralized platform that tracks your business’s real-time fin…