How do I calculate the profitability index?
When calculating the profitability index of a project, it is important to consider the initial investment and the future cash flows. The profitability index (PI) can be calculated using the following formula:
PI = PV (Future Cash Flows) / Initial Investment. The PV (Future Cash Flows) can be calculated using Sourcetable.
It is important to note that the profitability index is a measure of the return on investment. If the profitability index is greater than 1, then the project is deemed to be profitable. If the profitability index is less than 1, then the project is deemed to be unprofitable.