# The index of profitability of the project in the cost efficiency.

as planning and implementation of the investment project involve a number of difficulties.Obviously, you first need to solve all the problems arising during the planning phase.Any business - it's not just an idea, but also a large number of calculations.The person who plans the investment project, it is necessary to determine both performance and economic.Among the latter, a special place is occupied by those which form a system of indicators of economic efficiency.

Strictly speaking, in this system, you can include any measures that, in your opinion, most accurately characterize the effectiveness of the project in question.However, there are indicators that are calculated always, without them it is impossible to imagine any one business plan.This category may include the net present value (denoted by NPV), internal rate of return (denoted IRR), payback period (denoted by PP) and the index of profitability of the investment project (denoted IP, or PI).Each of these indicators is important in its own way, but in the system they allow more holistically evaluate the project and make a conclusion about expediency of investments.

dwell in more detail on this index as an index of profitability.In principle, its calculation and economic sense identical to any other measure, which characterizes profitability.Each of these values ​​shows relative economic resource utilization.For example, return on assets shows the level of the profit, which brings the cost of each unit of assets.

In this case, the profitability index describes how many rubles of profit brings each ruble invested in investment.Based on this definition, we can conclude how to calculate this index.It is understood that should be attributed to the value of the profit margin of capital investments.But this simple calculation is very inaccurate, and it can only be used for very rough estimate "by eye".To do everything correctly and accurately, it is necessary to take into account the effect of the time factor.To do this in economics applied discounting mechanism, which allows you to bring the future value of the current point in time.Thus we see that in the numerator is the sum of the discounted profit for the entire duration of the project, and the denominator - the sum of the above investment.

Of course, the profitability index has a certain value, which is the boundary that separates effective from ineffective projects.As you can understand, this value - a unit.This level means that investment in fully covered by earnings.If you intend to obtain from the project some effect other than economic, it can be considered effective, otherwise - it is better to find a more profitable way of investing.

level of profitability is directly connected with the index of net project cost, reduced to the moment (NPV).If you have already calculated the value of NPV, the margin can be determined as follows: NPV should be divided by the amount of discounted investment, and then add one to the result.Obviously, the negative NPV will cause that the profitability is less than unity, and therefore, the draft is not effective.Zero net cost of the project will involve profitability at the level of the unit and, therefore, the presence of other positive effects the project may already be taken.

It should be remembered that the index of profitability of the project alone can not describe the effectiveness of proposed investments, therefore an objective and accurate assessment of the whole system, it is desirable to calculate the indicators.