Profitability index
By Jude Wallis
The profitability index is the present value of a project's future inflows divided by its initial outlay. A result above 1 corresponds to a positive net present value.
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The index and net present value always agree on whether a project is worth doing, because both are built from the same discounted inflows. Above 1 is the same statement as a positive NPV, and the two can never point in opposite directions on a single project.
They can disagree about ranking, and that is the reason to compute the index at all. NPV measures value created; the index measures value created per unit of money committed. When capital is limited, ranking by the index fits more value into the same budget than ranking by NPV.
Both rest on the same discount rate, so a rate chosen loosely moves the index and the NPV together. The profitability index calculator is the ratio, how the profitability index works is the explainer, present value is the discounting, and profitability index against NPV covers the ranking conflict.