The profitability index formula calculates a project’s profitability based on its future discounted returns relative to the initial investment.(PI) Profitability Index is equal to (PV) Present Value Of future cash flows (INR) Divided to  Initial Invesment.

Formula us,

PI = PV of future cash flows / Initial investment,

or

PI = Discounted benefit / Discounted cost,

let us consider,

• PV is the present value of future cash flows. PV is a method of discounting future cash to its current value.
• Discount rate:  Discount rates are determined by the cost of the capital needed to implement a project. If you want to learn more about how to determine discount rates, check out the Weighted average cost of capital (WACC) calculator.
• Initial investment is the cost of capital needed to initiate the project, recorded as the only outflow (-).

Example For Profitability  Index 

PI = 1 + NPV / initial investment.

The initial investment of $400,000 . The future cash flows of five years from the poultry sales are discounted at a rate of 10%, the total sum of the present value (PV) is $700,000.