profitabilitetsindeks

Profitabilitetsindeks, also known as profitability index (PI), is a capital budgeting metric that measures the ratio of the present value of expected future cash inflows to the initial investment required for a project. It expresses the value created per unit of invested capital and helps assess whether a project is worthwhile given a discount rate.

Calculation: PI = PV of future cash inflows / initial investment. The present values are computed by discounting each expected cash flow at the project's cost of capital or another chosen discount rate. Equivalently, PI = 1 + NPV / initial investment, where NPV is the net present value of the project.

Interpretation and use: A PI greater than 1 indicates a positive NPV and a potentially desirable project; a PI less than 1 indicates a negative NPV. The index is particularly useful for ranking multiple projects when capital is limited, as it normalizes for different investment sizes. It complements other criteria such as NPV and internal rate of return (IRR) and reflects the time value of money.

Limitations: The profitability index depends on the discount rate, which can influence decisions. It may bias toward larger projects with substantial cash inflows and can be less informative when comparing mutually exclusive projects of different scales or durations. Like other financial metrics, it does not account for risk differences, strategic alignment, or nonfinancial factors, and assumes known cash flows.

Relation to other metrics: NPV and PI yield the same accept/reject rule for independent projects when the discount rate is constant; for mutually exclusive projects, PI can lead to different rankings than NPV. A project is acceptable when PI > 1, and the decision threshold is equivalent to achieving a positive NPV at the chosen discount rate.