The profitability index (PI) is the ratio of the sum of the present value of cash flows to the initial cost of the project, which measures its relative profitability. A project is acceptable if PI > 1, and the higher the PI, the higher the project ranks. PI is mathematically very similar to return on investment (ROI). PI is a relative measure whereas ROI is an absolute measure. It returns a ratio (the ratio is an absolute value, ignoring the negative investment cost) while ROI is usually described as a percentage.
Mathematically, NPV, IRR, MIRR, and PI should provide similar rankings although conflicts may sometimes arise, and all methods should be considered as each provides a different set of relevant information.
