Owners & finance · 17 June 2025 · 1 min read
Money multiple, payback and profitability index
Building on our WACC, NPV, IRR discussions, these three metrics provide crucial risk insights that complete your investment analysis toolkit.
What Are These Metrics?
Money Multiple: Total cash returned ÷ initial investment
Payback Period: Time to recover initial investment
Profitability Index: Present value of returns per rupee invested
Hotel Case Study: Boutique Resort
Initial Investment: ₹10 Crores
Project Life: 7 years
WACC: 8.04%
Cash Flows:
Year 1: ₹1.5 Cr | Year 2: ₹2.0 Cr | Year 3: ₹2.5 Cr
Year 4: ₹3.0 Cr | Year 5: ₹3.5 Cr | Year 6: ₹4.0 Cr
Year 7: ₹12.5 Cr (including exit value)
1. Money Multiple
Total Inflows: ₹28.5 Crores
Money Multiple = ₹28.5 ÷ ₹10 = 2.85x
Excel: =SUM(B1:B7)/A1
1. Payback Period
Cumulative analysis shows payback at 4.3 years
Excel: Use =SUM($B$1:B1) for cumulative flows
1. Profitability Index
Present Value: ₹19.49 Crores
PI = ₹19.49 ÷ ₹10 = 1.95
Excel: =NPV(8.04%,B1:B7)/A1
Analyst Value
Money Multiple: Simple return measurement, stakeholder communication
Payback Period: Liquidity assessment, risk indicator
Profitability Index: Risk-adjusted efficiency, capital rationing
Decision Framework
Combined Results:
NPV: ₹9.49 Cr (positive)
IRR: 24.7% (vs 8.04% WACC)
Money Multiple: 2.85x
Payback: 4.3 years
PI: 1.95
Investment Guidelines
Conservative: Payback <5 years, Multiple >2.0x, PI >1.5
Growth: PI >2.0, Multiple >3.0x, longer payback acceptable
Risk Classification:
High Multiple + Short Payback = Low Risk
High Multiple + Long Payback = Moderate Risk
Low Multiple + Long Payback = High Risk
Applications
Capital Allocation: Rank by PI for optimal deployment
Risk Management: Diversify by payback ranges
Performance Tracking: Monitor actual vs projected
The Bottom Line
These metrics complement NPV/IRR analysis, providing intuitive risk measurements. Money Multiple offers simple returns, Payback Period measures recovery speed, and Profitability Index delivers efficiency ratios.
Together, they bridge complex financial theory with practical investment reality, enabling sophisticated yet understandable hotel investment decisions.