Profitability Index measures the ratio between the present value of future cash flows to the initial investment. PI is also known as Value Investment Ratio (VIR) or Profit Investment Ratio (PIR).
Investment in a project should be done only if PI > 1
Example 1: XYZ Ltd has invested Rs. 200000 in a project, the NPV of the project is 15000.00. Calculate the Profitability Index
Solution:
Example 1: XYZ Ltd has invested Rs. 200000 in a project, the NPV of the project is 15000.00. Calculate the Profitability Index
Solution:
Profitability Index = 
= 1 + 15000/200000 = 1+ 0.075
Hence, Profitability Index = 1.075
