Profitability index
Profitability index is the index that is found by dividing the project's present value of future cash flows by its initial cost. A profitability index greater than 1 is equivalent to a project's having positive net present value.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Profitability index. Found by dividing the project's present value of future cash flows by its initial cost. A profitability index greater than 1 is equivalent to a project's having positive net present value.
According to Managerial Accounting by Braun, Tietz (5th edition),
- Profitability index is an index that computes the number of dollars returned for every dollar invested, with all calculations performed in present value dollars. Computed as present value of net cash inflows divided by investment; also called present value index.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
