Profitability Index (PI)

Published on May 06, 2020
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
Profitability Index = 
= 1 + 15000/200000 = 1+ 0.075
Hence, Profitability Index = 1.075

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ramandeep singh

My name is Ramandeep Singh. I authored the Quantitative Aptitude Made Easy book. I have been providing online courses and free study material for RBI Grade B, NABARD Grade A, SEBI Grade A and Specialist Officer exams since 2013.

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