Profitability Index

Home » CMA Glossary Term » Ratios and Performance Metrics » Profitability Index

The profitability index, also known as the profit investment ratio, is a financial metric used to evaluate the attractiveness of an investment or project. It is calculated by dividing the present value of future cash flows by the initial investment cost. A profitability index greater than 1 indicates a potentially profitable investment. This index aids in capital budgeting decisions by comparing the relative profitability of multiple projects.

CMA Exam Academy 16-Week Accelerator Program