Proceedings in Manufacturing Systems, Volume 7, Issue 1, 2012 ISSN 2067-9238 THE USE OF PROFITABILITY INDEX IN ECONOMIC EVALUATION OF INDUSTRIAL INVESTMENT PROJECTS Marian Andrei GURAU 1,* 1) PhD student, Faculty of Engineering and Technological Systems Management, University “Politehnica” of Bucharest, Romania Abstract: The economic and financial evaluation of industrial investment projects in developed countries with market economy is based on the combined use of traditional and modern, rational methods, charac- terized by the scientific and reliability, tested and validated by long practice. In this article is presented the indicator of economic evaluation of industrial projects, profitability index, the method of calculation, as well as the advantages and disadvantages of using it through a case study. The case study shows a clear problem solving investment in case of the existence of several variants of industrial projects and their related modeling in linear terms. The profitability index is a significant indicator in assessing the economic and financial performance of a project or a company both internally and in the diagnostic tests requested by external partners. Key words: method of profitability index, economic evaluation, industrial investment projects. 1. INTRODUCTION 1 In recent decades extensive studies have been under- taken to establish principles and research methods and techniques and improving economic and financial analy- sis of projects in phase of initial investment. Analysts currently operate with concepts and techniques generally accepted in all developed countries and are taken up by other countries, including Romania [1, 3]. Traditional methods for assessing the economic and financial efficiency of investment is characterized by: a static analysis approach to processes and phenomena; simplification of real situations in the economy during the economic life of the product investments, working with constant or average annual benefits / economic ef- fects and expected operating costs [1]. For the modern, rational evaluation of projects is characteristic the dynamic approach of investment analy- sis process, on the time horizon identical for all variants and investment alternatives, structured of work time exe- cution and economic life time of build capacities. It is taken into account the impact factor of time, working with the present value, as a rule, determined by the start of the work, by all costs (investment and operating), in- comes and profit generated by this project investment. Combined use of traditional and modern methods is specifying to evaluate the investment projects of small and medium-scale. For evaluation of large scale projects is only used dynamic analysis methods based on rational, modern [1, 7 and 8]. Regardless of the method used, assessment of in- vestment projects is accomplished by means of an indica- tors system. The system contains efficiency indicators designed in economic and technical specifics of the area * Corresponding author: Eduard Caudella Street, No.20, Constanţa, Romania Tel.: 0727804893 E-mail addresses: andreigurau@yahoo.com in which the project is realized, with economic signifi- cance and relevance for the characterization and expres- sion of purpose and investor interests. In formulating the system of indicators for evaluating projects is taken into account also the relative importance that decision-maker is giving one or other of the indicators of efficiency, compared with other possible indicators to use, develop or use of economic theory in practice [2, 3, and 5]. Basically, a system of indicators of economic effi- ciency of investments, including between five and nine indicators (number of indicators = 7 ± 2) and its use of a draft choice ensure convenient, not much in terms of the exigencies of efficiency. The decision to invest is born of necessity or interest to make an investment. Any decision to invest must be subordinated of the private finance objective, which of the maximization company value. The way in which an organization grow and develop, the ability to survive and even being competitive will depend on the ability to gen- erate steady streams of ideas for new products, better products or lower costs, that is to get the best investment decisions [6]. Such a decision is based on several consid- erations: “value system” (time value of money n), the economic context of the project, the perspective of inves- tors, funding opportunities, risks, the forecast of the input and output flows, accounting of performance, as well as on various alternative investment opportunities with comparisons depending on available resources, generic comparisons called opportunity cost of investment. There are several development strategies, from the point of view of the enterprise, resulting in two types of investments: internal and foreign investment. Internal investments consist of capital allocation for the acquisi- tion of material and non-material assets, with a view to enhancing the development and appliance manu- facturing and distribution of goods and services which are the subject of enterprise activity. Foreign investments