1. What is the Cost Performance Index (CPI)?

The Cost Performance Index (CPI) is a financial metric used in stock analysis and project management to measure the cost efficiency of an investment. It compares the earned value (EV) of an investment to its actual cost (AC).

2. How Does the Calculator Work?

The calculator uses the CPI formula:

Where:

• \( EV \) — Earned Value (the budgeted value of work performed)
• \( AC \) — Actual Cost (the actual cost incurred)

Explanation: A CPI greater than 1 indicates cost efficiency (under budget), while a CPI less than 1 indicates cost inefficiency (over budget).

3. Importance of CPI Calculation

Details: CPI is crucial for investors and project managers to evaluate the financial performance of investments, identify cost overruns, and make informed decisions about resource allocation.

4. Using the Calculator

Tips: Enter the earned value and actual cost in dollars. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a CPI of 1.0 mean?
A: A CPI of 1.0 means the investment is exactly on budget - the earned value equals the actual cost.

Q2: How is CPI different from other financial ratios?
A: CPI specifically measures cost efficiency by comparing value earned to cost incurred, while other ratios may focus on profitability, liquidity, or other financial aspects.

Q3: Can CPI be used for both stocks and projects?
A: Yes, CPI is a versatile metric that can be applied to stock investments, project management, and various financial analyses where cost efficiency needs to be measured.

Q4: What is considered a good CPI value?
A: Generally, a CPI greater than 1.0 is considered good as it indicates cost efficiency. The higher the CPI, the better the cost performance.

Q5: How frequently should CPI be calculated?
A: CPI should be calculated regularly throughout the investment period to monitor performance and make timely adjustments when needed.