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imported>Doug Williamson |
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| (PI).
| | The process of using a risk map. |
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| ''Investment appraisal.''
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| The profitability index of a project or other proposed investment may be represented by the following formula: | |
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| Profitability index = PV/Co
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| Where:
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| PV = the present value of all the cashflows except the initial investment.
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| Co = the absolute value of the initial investment.
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| Calculated on this basis, projects with a PI > 1 are acceptable.
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| The profitability index is also sometimes known as the ''Benefit-Cost Ratio (BCR).''
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| ==Alternative definition==
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| The profitability index may also be represented by the following alternative formula:
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| Profitability index = NPV/Co
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| Where:
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| NPV = net present value of all positive and negative cashflows, including the initial investment outflow Co
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| When defined on this alternative basis, the minimum threshold of acceptability becomes a profitability index of 0.
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| == See also == | | == See also == |
| * [[Capital rationing]] | | * [[Risk map]] |
| * [[Net present value]]
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| * [[Payback period]]
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| * [[Present value]]
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| [[Category:The_business_context]]
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| [[Category:Corporate_finance]]
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| [[Category:Investment]]
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| [[Category:Long_term_funding]]
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| [[Category:Identify_and_assess_risks]]
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| [[Category:Manage_risks]]
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| [[Category:Risk_frameworks]]
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| [[Category:Risk_reporting]]
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Revision as of 08:55, 20 May 2015
The process of using a risk map.
See also
