Cost-benefit ratio

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Cost-benefit ratio

The net present value of an investment divided by the investment's initial cost. Also called the profitability index.

Cost-Benefit Ratio

A ratio of whether or not and how much profit will result from an investment. It is calculated by taking the net present value of expected future cash flows from the investment and dividing by the investment's original cost. A ratio above one indicates that the investment will be profitable while a ratio below one means that it will not. A cost-benefit ratio is also called a profitability index.
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The authors make a correction of aggregation by calculating weightings in terms of amounts actually invested (discounted value of payments made by investors), which makes the aggregation of the profitability indexes more 'transparent'.
Novices and experts will find much here; from financial fitness evaluators and profitability indexes to setting target prices for buy and sell ratios.
The benefit of calculating profitability indexes is that the higher the PI of an investment, the greater its return per dollar invested.