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Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project.It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment.
An investor comparing the profitability index with other metrics. Similar to PI, investors use NPV to determine whether a project is likely to add value to their portfolio.
The NPV method can be slightly adjusted to calculate how much money is contributed to a project's investment per dollar invested. This is known as the capital efficiency ratio. The formula for the net present value per dollar investment (NPVI) is given below:
Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. [ 2 ] Liquidity ratios measure the availability of cash to pay debt.
Profitability index: Measures the cost-benefit for the property investment. Internal rate of return: Assesses the financial efficiency and desirability of the investment property. Debt coverage ratio: Finds out whether the property generates enough money to cover the debt.
The Jeffrey S. Berg Stock Index From January 2008 to December 2012, if you bought shares in companies when Jeffrey S. Berg joined the board, and sold them when he left, you would have a 47.8 percent return on your investment, compared to a -2.8 percent return from the S&P 500.
The Allen I. Questrom Stock Index From January 2008 to June 2010, if you bought shares in companies when Allen I. Questrom joined the board, and sold them when he left, you would have a 6.3 percent return on your investment, compared to a -27.5 percent return from the S&P 500.
The H. Lee Scott, Jr. Stock Index From January 2008 to December 2012, if you bought shares in companies when H. Lee Scott, Jr. joined the board, and sold them when he left, you would have a 37.7 percent return on your investment, compared to a -2.8 percent return from the S&P 500.