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A quantitative measure of economical attractiveness of the businessOne of the efficiency metrics of Financial Investment defined as:

\mbox{PI} = 1 + \frac{\mbox{NPV}}{\mbox{I}_0} = \frac{\mbox{PV}[CF^+]}{I_0}

where

The key difference with NPV is that PI shows a value of returns per unit cash invested.  

This particularly means that some projects some Projects with higher NPV may be less attractive in PI terms than Projects with lesser NPV projects as they require a high initial investmenthigher Initial Investment.

This allows a fair comparison of investment efficiency between two investment projects with different initial investments different Initial Investment volumes.

The corporate investment policy usually dictates that:

• investment Projects with PI ≤ 1 should be rejected
  
  
• investment Projects with higher PI should have a priority over the projects the Projects with lower PI
  
  
• investment Projects with lower PI are added up to the Investment Package to reach the pre-set value of affordable Initial Investment (I0I₀)
  
  
• investment Projects with lower risk should have a priority over the projects the Projects with higher risk

The quantification of Project's is performed individually for each Project based on its nature.

Weighing the Project's risks against PI to include to or exclude from  Investment Package is based on the Corporate Investment Policy.

The formula 

If this is not the case and the future cash flows include additional investments (for example additional paid in capital and/or CAPEX) then one need to give a preference to other methods of assessing the investment profitability, like Present Value Index (PVI)  and Modified Internal Rate of Return (MIRR).

See also

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Economics / Investment / Financial Investment 

[ Net Present Value (NPV) ][ Present Value Index (PVI) ]