how do you calculate profitability index
Calculation of Profitability Index. While the NPV shows if the investment will yield a profit (positive NPV) or a loss (negative NPV), the profitability index will show the degree of the profit or loss. Business owners can use either the Present Value of Future Cash Flows (PV) or the Net Present Value (NPV) to calculate the profitability index. Profitability Index = (PV/Amount Invested) = 1 + (NPV/Amount Invested) Using the example, a company expects to receive $100,000 three years from now on an $85,000 investment.