NTIR or Number of Times Investment Returned is similar to the Profit-to-Investment ratio. The PI ratio is often called ROI; however, this is discouraged because of inevitable confusion with DCFROI. It is a simple, undiscounted measure of the total net cash flows other than the “investment.” In the payout example the cumulative undiscounted cash flow ultimately produces $4,914,952 in net cash flow or $5,914,952 in positive cash flow following from a $1,000,000 investment (negative cash flow). The NTIR in this case is 5.9. The Profit-to-Investment ratio is defined as the cumulative profit divided by the investment and would be 4.9. In a project that just recovers its investment; the NTIR is 1.0 while the PI Ratio is 0.0.
NTIR is a poor choice when comparing projects with different cash flow profiles. In the case of the tight gas case illustrated previously, the NTIR for the 640-acre case is going to be many, many times higher than that of the infill cases. NTIR can become very large when investments are small. It is sometimes the case that other investments are made over time. Some analysts include these in cash flows while others include them in the initial investments. NTIR is most useful when comparing projects that have similar cash flow profiles and timing. A comparison of a large number of economic evaluations of Austin Chalk horizontal wells showed that NTIR ranked projects nearly the same as other more sophisticated techniques. NTIR may also be useful when there are high decline rates and low escalation rates leading to the majority of cash flows occurring early in the life of the project. NTIR is particularly misleading in very long life projects with escalated prices.
While I don’t care much for either NTIR or PI Ratio as evaluation criteria, the main thing to remember is to only use one of them along with other measures of economic value. Decision makers can get used to either but using both will inevitably lead to more confusion than these criteria are worth.