Profitability Index

Definition of 'Profitability Index'


An index that attempts to identify the relationship between the costs and benefits of a proposed project through the use of a ratio calculated as:

Profitability Index

Investopedia explains 'Profitability Index'


A ratio of 1.0 is logically the lowest acceptable measure on the index. Any value lower than 1.0 would indicate that the project's PV is less than the initial investment. As values on the profitability index increase, so does the financial attractiveness of the proposed project.



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