Profitability index is a method used for investment appraisal that is based on discounted cash-flow methodology. It calculates the present value of cash flows generated by the project per a unit of capital outlay. As such it is helpful in decision-making in situations when the company cannot undertake all acceptable projects due to the limited budget.
NPV / present value of investment
PI = 1 → NPV = 0 → IRR = discount rate