IRR Calculator
Calculate the internal rate of return of an investment with cash flows.
Tip: IRR is the rate where NPV = 0 — the higher it is, the more profitable the investment.
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About this digital tool
The IRR calculator finds the internal rate of return of an investment, that is, the discount rate at which the net present value (NPV) of all cash flows becomes zero. Enter the initial investment (as a negative flow) and the cash flow for each period, and the tool finds the IRR through iterative calculation. The higher the IRR, the more attractive the project.
IRR is used to compare projects, real estate investments and business plans. Compare it with the cost of capital or with the return on alternatives: if IRR is above it, the project makes sense. Be careful when the cash flow changes sign several times, because there may be several solutions. The result is an estimate and depends on the forecasts.
How to use
- Enter the initial investment (negative).
- Add the future cash flows for each period.
- See the internal rate of return (IRR).
Frequently asked questions
What does IRR show?
IRR is the annual rate of return the investment produces. If IRR > cost of capital (e.g. the loan rate), the investment is profitable.
What is IRR and how is it interpreted?
It is the annual rate of return that makes the cash flows equal to the investment. If IRR exceeds the return you require or the cost of financing, the project is attractive.
How is IRR calculated?
It finds the rate r at which the sum of discounted flows minus the investment is zero. There is no closed formula, so a numerical method is used, as the calculator does.
What is the difference between IRR and ROI?
ROI is a simple total percentage without time, while IRR takes into account the timing of each flow and gives an annual rate, so it is more accurate for multi-year projects.