The profitability index is a tool for ranking investment proposals.

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The profitability index, also known as the profit investment ratio, is a measure used to evaluate the profitability of investment projects. It is calculated by dividing the present value of future expected cash flows by the initial investment cost. The resulting index is a ratio that indicates how much profit is expected per unit of investment. This measure is used to rank investment proposals, where a higher index indicates a more profitable investment.

The Profitability Index Is a Tool for Ranking Investment Proposals