Profitability index

In capital-rationing analysis, ranking divisible projects by NPV divided by initial investment identifies value created per unit of scarce funds. Some texts call present value of future inflows divided by initial investment the profitability index instead. For a simple initial outlay followed by inflows, that alternative equals one plus the NPV-to-investment ratio and gives the same ranking. Neither ratio alone solves an indivisible-project selection problem. Use the convention required by the question and consider whether timing, dependencies or multiple constraints make the simple method unsuitable.