12/10/2023 0 Comments Profitability indexHere is what these terminologies mean: Present value of future cash flows PI comprises two components, namely the present value of future cash flows, which is the numerator, and the initial investment required, which is the denominator. Related: What Are Profitability Ratios? (With Types And Examples) Components Of PI It is also useful for contrast and comparison when a company undertakes multiple projects and investments. It helps investors to quantify the value of their investments. PI serves as a useful method for ranking investment projects and measuring the value created per unit of investment. The higher the PI of a project, the more benefits it may bring in and the more attractive it is. It is a ratio between the present value of future cash flows and the initial investment. The profitability index, also known as the profit investment ratio (PIR) or the value investment ratio (VIR), is a capital budgeting tool that displays the relationship between the costs and benefits of a potential project. View more jobs on Indeed View More What Is The Profitability Index?
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