The financial PI is an acronym for profitability index which is one of the many tools used by an analyst to perform investment analysis. The analyst is tasked with finding an investor's return on investment and the financial PI helps her in doing this task. The financial PI is a ratio of discounted profits over discounted expenses where the company's cost of capital is used as the discount rate for discounting the money amounts. Here I present you with a financial PI document as a Word file that will examine finding profitability index of an investment. It will provide the definition of financial PI giving you the formulas need to find the profitability index. It will also demonstrate example calculation of profitability index of an investment using sample data for an investment.
Finding profitability index in Excel
Up until Excel 2013, there weren't any financial functions in Excel to find the profitability index or any of the other financial measures of return on investment - ROI. In March 2012, tadXL was launched offering a large set of financial functions for the Excel 2007, 2010 and 2013. None of these financial functions were available in Excel at least up till 2013. Not sure why but if Microsoft does indeed release its own set of financial functions for the upcoming Excel 2015 or 2016 then most likely these financial function would be copies of those that are already part of tadXL add-in. So what gives a big company such as Microsoft that has had the same old list of financial functions since 2000 has now decided to introduce new financial functions. Copyrights are protected by law, I assume Microsoft knows that so we will take a wait and see approach to find out what they cooking up in Redmond, Washington for the next version of Excel 2015 or 2016.
Using tadXL functions such as tadPI, tadPISchedule, tadXPI and tadXPISchedule finding profitability index in Excel 2007, 2010 and 2013 becomes really easy. Let us now briefly look at each of these three financial functions in tadXL to find financial PI using Excel:
=tadPI( rate, cash_flows, type, compounding, period, distribution ) =tadPISchedule( rates, cash_flows, type, compounding, period, distribution ) =tadXPI( rate, cash_flows, dates, type, compounding, period, distribution ) =tadPISchedule( rates, cash_flows, dates, type, compounding, period, distribution )