Profitability index (pi), Financial Management

Profitability Index (PI) :

It is a ratio of the present value of the total cash benefits to the present value of the net cash outlay.  The higher the PI, the higher the return. Any project with a PI higher than ONE is acceptable since profits exceed outlay. Projects with PI less than ONE are rejected.

Advantages:

  • It places the present value of every investment project on a relative basis so that projects of dissimilar sizes of capital outlays can be compared.
Posted Date: 10/15/2012 9:25:41 AM | Location : United States







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