Profitability index definition example essay

This free Finance essay on WHAT IS CAPITAL BUDGETING? is perfect for Finance students to use as an example. Aug 24, 2012 Words: 842 Length: 2 Pages Document Type: Essay Paper# :. Profitability Ratios I have never seen the payback method used in practice, having worked for trained financial professionals during my time working in government.

I can, however, imagine some small businesses using this method. For instance, in his recent essay, " ProfitIncreasing Strategies, " Tracy (2006) reports that there are a number of ways for most companies to add value to their product or service. " There are many strategies for generating sales, profitability and wealth in every industry, " he advises. Profitability index is an investment appraisal technique calculated by dividing the present value of future cash flows of a project by the initial investment required for the project.

Profitability Index Calculation Examples Explanation Lets understand the concept of profitability index with help of an example. Example: A company is proposed a project at a cost of which is expected to generate future net cash flows with a present value of million.

Profitability Ratio Analysis Finance Essay CHAPTER 2 LITERATURE REVIEW Introduction. The literature review means, the process of reading, analyzing, evaluating and summarizing scholarly materials about a specific topic.

Video: Profitability Ratio: Definition, Formula, Analysis& Example How do you know if a company is performing well? In this lesson, you'll learn about various profitability ratios, including what they mean, their formulas and examples illustrating them.

Profitability index enable Directors to identify the relationship between the cost and benefits of a project. A good indicator is a profitability index that is greater than one.

Proposals should therefore be ranked according to their profitability index, and topranked proposal should be undertaken until the entire funds are used up. Profitability Index Explanation. Profitability index can be explained as a measure of whether or not a proposed project will be profitable and simple or complicated depending on the scope of the project in question. If the money expected to be generated from the project exceeds the costs required to fund the project, then it will be a profitable Profitability Index: Profitability index is the total present value of future net cash flows of a project divided by the total present value of the net initial investment (Horngren, 1997).

It measures the cash flow return per dollar invested.

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