the profitability index pi alternatively referred to as value investment ratio vir or profit investment ratio pir describes an index that represents the relationship between the costs and benefits of a proposed project 
the profitability index is calculated as the ratio between the present value of future expected cash flows and the initial amount invested in the project a higher pi means that a project will be considered more attractive investopedia theresa chiechiunderstanding the profitability index pi the profitability index is helpful in ranking various projects because it lets investors quantify the value created per each investment unit a profitability index of 1 0 is logically the lowest acceptable measure on the index as any value lower than that number would indicate that the project s present value pv is less than the initial investment as the value of the profitability index increases so does the financial attractiveness of the proposed project the profitability index is an appraisal technique applied to potential capital outlays the method divides the projected capital inflow by the projected capital outflow to determine the profitability of a project as indicated by the aforementioned formula the profitability index uses the present value of future cash flows and the initial investment to represent the aforementioned variables 