Profitability Index (PI): Meaning & Definition

A method of evaluating investment alternatives. PI is the ratio between present value of cash inflows and present value of cash outflows. It shows the number of times that the present value of cash inflows is more that the present value of cash outflows. It is calculated by dividing present value of cash inflows with present value of cash outflows. The project having the PI below 1 is unprofitable so it should be rejected. Projects having PI more than 1 are considered as profitable projects.

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