Profitability Index | Formula | How to Calculate?

In this video on Profitability Index, here we look at the two profitability index formulas, the different components of formulas and profitability index with practical examples.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐈𝐧𝐝𝐞𝐱?
---------------------------------------------------

PI is the ratio of the current value of the project's future cash flows to the initial project investment.

𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐈𝐧𝐝𝐞𝐱 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
---------------------------------------------------

Method #1

Profitability Index Formula = Present Value of Future Cash Flows / Initial Investment Required

Method #2

Profitability Index Formula = 1 + (Net Present Value / Initial Investment Required)

𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐈𝐧𝐝𝐞𝐱
---------------------------------------------------------

A Enterprise has decided to invest $ 1100 million in a project that would be the initial investment. As they consider whether investing in this project is a good deal, they found that the present value of this project's future cash flow is 1530 million. Calculate profitability index?

Profitability Index Formula = Present Value of Future Cash Flow / Initial Investment Required
PI = US $150 million / US $110 million
PI = 1.36

To know more about 𝐏𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐈𝐧𝐝𝐞𝐱, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/profit...

Subscribe to our channel to get new updated videos. Click the button above to subscribe or click on the link below to subscribe - @wallstreetmojo

• #education
• #profitability_index
• #profitability_index_example
• #profitability_index_calculation
• #what_is_profitability_index
• #profitability_index_formula
• #profitability_index_method