Use the PSA Method Calculator to instantly determine the Projected Success Index (PSI), a variation of ROI, for your financial project or investment. This tool supports solving for any single missing variable, including Initial Investment, Annual Revenue, Annual Operating Cost, Project Duration, or the final PSA Index.
PSA Method Calculator
Detailed Calculation Steps
Enter your values and click Calculate to see the step-by-step breakdown.
psa method calculator Formula
$$R = \frac{((S – A) \times M) – P}{P} \times 100$$
Where $P$ is the Initial Investment, $S$ is the Annual Revenue, $A$ is the Annual Operating Cost, and $M$ is the Project Duration in Years.
Formula Sources: Net Present Value (Investopedia), CFA Institute Guidelines
Variables
- Initial Investment (P): The upfront capital expenditure required for the project or asset purchase.
- Annual Revenue (S): The gross income generated by the project annually.
- Annual Operating Cost (A): The recurring costs (maintenance, labor, utilities) required to run the project each year.
- Project Duration in Years (M): The total number of years the investment is expected to generate returns.
- PSA Index (R): The final profitability metric, expressed as a percentage, representing the total return relative to the initial investment over the project’s life.
Related Calculators
Explore other key financial planning tools:
- Net Present Value (NPV) Calculator
- Internal Rate of Return (IRR) Calculator
- Payback Period Calculator
- Equity Multiple Calculator
What is psa method calculator?
The PSA (Projected Success Analysis) Index is a proprietary simplification of the total Return on Investment (ROI) metric, specifically tailored for long-term project viability assessments. Unlike the simple ROI which often focuses on a single period, the PSA Index aggregates the net cash flow (Revenue minus Cost) over the entire project duration (M) and compares this aggregated profit against the initial capital expenditure (P).
A high PSA Index (e.g., above 100%) indicates that the project has generated more than double its initial investment in total profit, while an index below 0% signals a net loss over the duration. This calculation provides a quick, clear benchmark for prioritizing investments with maximum potential profitability.
The tool is designed for flexibility, allowing analysts to run reverse calculations. For instance, if a target PSA Index (R) is required, the tool can solve for the necessary Annual Revenue (S) or the maximum permissible Initial Investment (P), facilitating quick feasibility studies.
How to Calculate psa method calculator (Example)
Consider a project with the following details:
- Identify Variables:
- Initial Investment (P): $150,000
- Annual Revenue (S): $40,000
- Annual Operating Cost (A): $10,000
- Project Duration (M): 6 years
- Calculate Net Annual Profit (S – A): $$Net Profit = \$40,000 – \$10,000 = \$30,000$$
- Calculate Total Project Profit (Net Profit $\times$ M): $$Total Profit = \$30,000 \times 6 = \$180,000$$
- Calculate Total Return (Total Profit – Initial Investment): $$Total Return = \$180,000 – \$150,000 = \$30,000$$
- Apply the PSA Index Formula: $$R = \frac{\text{Total Return}}{P} \times 100 = \frac{\$30,000}{\$150,000} \times 100 = 20\%$$
Frequently Asked Questions (FAQ)
What is a good PSA Index value?
Generally, a PSA Index (R) above 0% indicates the project is profitable over its duration. For competitive projects, analysts usually target a value above 50% to account for risk and opportunity cost.
Can I solve for the Initial Investment (P) if I know the target PSA Index (R)?
Yes. This calculator is designed to solve for any single missing variable. If you input your target R, S, A, and M, the calculator will determine the maximum P you can afford while still meeting your target profitability.
Why is the Project Duration (M) an important variable in this method?
Unlike simple ROI, the PSA Method uses the duration (M) to determine the total cumulative net profit. A project with a low annual margin but a long duration may be more profitable than one with a high margin and a short duration.
What happens if the Annual Revenue (S) is less than the Annual Operating Cost (A)?
If S < A, the Net Annual Profit (S - A) is negative, leading to a much lower or negative PSA Index (R), signaling significant losses for the project.