# 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.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

## 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.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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