## Answers the Question

Is a given project worthy of investment?

## Calculator for Profitability Index

## What Is the Profitability Index?

The profitability index is a measure of how much of a return on investment is offered by each project.

- Values above 1 indicate that a project is profitable (the higher the better)
- Values equal to 1 are breakeven
- Values below 1 represent a loss on investment

## Why Is it Important?

- Many businesses can not fund every project that is under consideration. In fact, many projects aren't even worth pursuing at all.
- The profitability index can be used to compare projects and evaluate them independently.

## Formula(s) to Calculate Profitability Index

- PROFITABILITY INDEX = PRESENT VALUE OF CASH FLOW / INVESTMENT

## Common Mistakes

- Some projects have a strategic value beyond mere profitability.
- Some project may require resources (such as particular staff) that are not directly an input in the equation.