**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:**

= 1 + 15000/200000 = 1+ 0.075

**Hence, Profitability Index = 1.075**