Profitability Index Rule

See: Profitability Index.

We'll get to the actual rule in a second. But be warned: it's a rule of thumb that will seem pretty obvious. Like, in the same category as "don’t stick needles in your eye" or "don’t take a nap on a busy highway."

The profitability index rule states that you shouldn't put money into a project with a profitability index figure of less than 1.0. The rule works because a reading of less than 1.0 on the profitability index means a project isn't profitable.

To put it another way, if you get a reading below 1.0 on the profitability index, it means that, according to all your current information, investing in that venture will lose money. So, uh...don't put your money there. Find something else...something with a profitability index reading of more than 1.0. In other words, invest your cash in something that will make money. Ever see David Letterman's Stupid Pet Tricks segments? Well, this is that...for accountants and investors.

And, oh yeah, don't nap on a busy highway or stick a needle in your eye. Sheesh, do we have to tell you everything?