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Finally, we have the **Profitability Index (PI)**. This technique measures the relative profitability of a project. It is calculated by dividing the present value of a project's future cash inflows by the initial investment. A **PI** greater than 1 indicates that the project is expected to generate a positive **NPV** and is generally acceptable. A **PI** less than 1 suggests that the project is expected to generate a negative **NPV** and should be rejected. The **PI** is particularly useful for ranking projects. It allows companies to compare the relative profitability of projects with different initial investments. The **PI** provides a ratio that shows the value created for each dollar invested.
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