On this web page we show you how to use MS Excel Profitability Index formula or function to compute Profitability Index. Stop wasting time with arcane templates - we bet, here you will find all you need!
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What is Profitability Index
Profitability Index is a discounted cash flow technique used in financial analysis to evaluate capital investment proposals. Profitability Index is computed as the ratio of sum of discounted net cash flows over the initial expense. Profitability Index greater than 1 is acceptable, a Profitability Index of 1 suggests there are no benefits to be had from the project. A Profitability Index of less than 1 means it is a losing proposition
Profitability Index MS Excel Example
Miami Herald newspaper is planning an installation of soda machine for its fire fighters. The machine will cost $12,000 and is expected to generate sales in amounts of $3000, $4000, $5000, and $6000 each of the next four years. Herald's has a WACC of 9%. Compute the Profitability Index
In Cell A1, Type the text WACC. In Cell B1 enter the value 9%.
In Cell A2, Type the text Time, In Cell B2 type 0, in cell C2 type 1, in cell D2 type 2, in cell E2 type 3 and in cell F2 type 4.
In Cell A3, Type the text Cash Flows, In Cell B3 type -12000, in cell C3 type 3000, in cell D3 type 4000, in cell E3 type 5000 and in cell F3 type 6000.
In Cell A4, Type the text PI. In Cell B4 enter the following function
=NPV(B1,C3:F3)/ABS(B3)
MS Excel Profitability Index Template
Download this MS Excel Template to find Profitability Index
| A | B | C | D | E | F | |
| 1 | WACC | 9% | ||||
| 2 | Time | 0 | 1 | 2 | 3 | 4 |
| 3 | Cash Flow | -12000 | 3000 | 4000 | 5000 | 6000 |
| 4 | PI | 1.19 |