Profitability Index

If you have a high-level business degree and your career consists of making high-pressure presentations in front of billionaire investment fund managers, you can’t just go in with a bunch of mushy, feelings-based arguments. Even stuff that seems relatively obvious needs to get turned into numbers. (Billionaire investment fund managers love when things are quantified; 93% of them just go gaga for a good stat.) What's more, those numbers need to have impressive sounding names...like "the profitability index."

However, in this case, the index itself is relatively straightforward. The profitability index suggests how profitable a particular investment will be. It presents the figure as a ratio of between the present value of future cash flows and the amount needed for investment.

So...if a project costs $10 million, but will produce a cash flow with a net present value of $15 million, it has a profitability index of 1.5. The higher the index, the more profitable the project.