Profitability Index Calculator — PI & NPV
Enter the initial investment, equal annual cash flows, discount rate, and number of periods to calculate the Profitability Index (PI), NPV, and discounted payback period.
%
years
Reject (PI < 1)
- 1
Discount rate (decimal)
r = 10% ÷ 100 = 0.1 - 2
PVIFA factor
(1 − (1 + 0.1)^−5) ÷ 0.1 = 3.7908This factor converts equal periodic cash flows into their present value. - 3
PV of cash flows
25,000 × 3.7908 = 94,769.67 - 4
Profitability Index
94,769.67 ÷ 100,000 = 0.948
How does this calculator work?
PI = PV of future cash flows ÷ initial investment, where PV = CF × [(1−(1+r)^−n)/r] for equal annual flows. PI > 1 means accept the project (positive NPV); PI < 1 means reject. It is useful for capital rationing because it measures value created per dollar invested.
Formula
How this is calculated
The Profitability Index (PI) — also called the value investment ratio or profit investment ratio — measures how much present value is created per currency unit invested. A PI above 1.0 means the project returns more than the cost of capital and should be accepted; a PI below 1.0 destroys value. When ranking mutually exclusive projects of different sizes, PI is a better decision metric than raw NPV because it normalises for scale.
For a constant annual cash flow (an annuity), the present value of cash flows is CF × [(1 − (1 + r)^−n) / r], where r is the discount rate per period and n is the number of periods. This is the standard present-value-of-an-ordinary-annuity formula. NPV is then PV of cash flows minus the initial investment. The discounted payback period shows how many full years of discounted cash flows are needed to recover the investment.
This calculator assumes equal, end-of-period cash flows (an ordinary annuity) and a single lump-sum investment at time 0. Real projects often have unequal cash flows or multiple investment tranches — in those cases use a full DCF model. The discount rate should reflect the project's risk and your cost of capital (WACC is a common choice for corporate projects).
Frequently asked questions
Use PI when you are comparing projects with different investment sizes or when capital is rationed. A project with a higher NPV but lower PI requires more capital per unit of value created; PI identifies the most efficient use of available funds.
For corporate projects the Weighted Average Cost of Capital (WACC) is the standard. For personal investments, use your opportunity cost — the return you could earn on the next-best alternative of equal risk.
No — this calculator assumes a constant annuity. For unequal cash flows you need to discount each period's cash flow individually: PV = Σ CF_t / (1 + r)^t.
Also known as
TG we-Calculate Editorial Team. (2026). Profitability Index Calculator — PI & NPV [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/profitability-index-calculator
TG we-Calculate Editorial Team. "Profitability Index Calculator — PI & NPV." TG we-Calculate. 2026. https://we-calculate.com/calculator/profitability-index-calculator.
TG we-Calculate Editorial Team, "Profitability Index Calculator — PI & NPV," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/profitability-index-calculator
@misc{wecalculate_profitability_index_calculator, title = {Profitability Index Calculator — PI & NPV}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/profitability-index-calculator}}, year = {2026}, note = {TG we-Calculate} }
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