Calculating your profitability index is straightforward once you know the Profitability Index formula and what each input means. This guide explains the method in plain language, walks through a manual calculation, and gives worked examples you can follow — then you can do it instantly with the Profitability Index Calculator.
What is Profitability Index?
The Profitability Index calculation tells you your profitability index from a few simple inputs. The figure you are solving for here is the profitability index.
The Profitability Index formula
The core formula is:
Profitability index = Present value of future cash flows ÷ Initial investmentHere is what each input means:
- Present value of future cash flows — a money amount. Example: ₹1,20,000.
- Initial investment — a money amount. Example: ₹1,00,000.
How to calculate it step by step
- Write down the present value of future cash flows (for example, ₹1,20,000).
- Write down the initial investment (for example, ₹1,00,000).
- Apply the formula above to get your profitability index.
- Double-check the result with the Profitability Index Calculator.
Worked examples
Example 1
| Input / Output | Value |
|---|---|
| Present value of future cash flows | ₹1,20,000 |
| Initial investment | ₹1,00,000 |
| Profitability index | 1.200 |
| Net present value | ₹20,000.00 |
With present value of future cash flows of ₹1,20,000 and initial investment of ₹1,00,000, the profitability index works out to 1.200.
Example 2
With present value of future cash flows of ₹2,40,000 and initial investment of ₹1,00,000, the profitability index works out to 2.400.
| Result | Value |
|---|---|
| Profitability index | 2.400 |
| Net present value | ₹1,40,000.00 |
Example 3
With present value of future cash flows of ₹60,000 and initial investment of ₹1,00,000, the profitability index works out to 0.600.
| Result | Value |
|---|---|
| Profitability index | 0.600 |
| Net present value | -₹40,000.00 |
Tips for an accurate result
- Keep your units consistent — mixing, say, months with years or grams with kilograms is the most common source of error.
- Round only at the very end. Rounding inputs early can shift the final answer noticeably.
- Re-run the numbers whenever an input changes, rather than estimating from an old result.
- Annual rates must be converted to the period you are calculating for (for example, divide an annual rate by 12 for a monthly figure).
Prefer not to do the maths by hand? — the Profitability Index Calculator does it instantly, for free, with the formula and a worked example built in.
Related calculators
Continue exploring finance calculators with these tools: SIP Calculator, EMI Calculator, CAGR Calculator, FD Calculator, Effective Annual Rate (EAR) Calculator.