## Profitability Index (PI)
The Profitability Index — also called the Desirability Factor or Present Value Index — expresses value created per rupee of investment. It is a relative (ratio) measure, useful when comparing projects of different sizes or under capital rationing.
### Formula
$$\text{PI} = \frac{\text{Sum of discounted cash inflows}}{\text{Initial cash outlay (or total discounted cash outflow)}}$$
### Decision rule
| Condition | Decision |
|---|---|
| PI ≥ 1 | Accept the proposal |
| PI < 1 | Reject the proposal |
For mutually exclusive projects, select the one with the higher PI.
> Link to NPV: PI ≥ 1 is equivalent to NPV ≥ 0. PI restates the NPV result as a ratio, which is why it is helpful for ranking projects when funds are limited.