IRR Calculator - Internal Rate of Return Calculator for Irregular Cash Flows
IRR Calculator
Calculate Internal Rate of Return (IRR) for investments with irregular cash flows
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
IRR Calculation Results
Internal Rate of Return (IRR)
Further Investments
Investment Period
Net Return
Return on Investment (%)
Detailed Cash Flow Analysis
| Time | Cash Flow | Net Cash Flow |
|---|
How to Use This IRR Calculator
- Enter Initial Investment: Input the amount of money you initially invest (this should be a positive number as it represents your outflow).
- Input Yearly Cash Flows: Enter the expected cash flows for each year. Use negative numbers for additional investments and positive numbers for returns.
- Add or Remove Years: Use the "Add More Years" button to extend your analysis period, or "Delete" buttons to remove specific years.
- Calculate IRR: Click "Calculate IRR" to get your results, including IRR percentage, total returns, and detailed analysis.
- Interpret Results: Review the key metrics and cash flow breakdown to understand your investment's performance.
Key Metrics Explained
- Internal Rate of Return (IRR): The annualized effective compounded return rate
- Further Investments: Total additional money invested beyond the initial amount
- Investment Period: Total duration of the investment in years
- Net Return: Total cash inflows minus total investments
- Return on Investment (%): Percentage return based on total investment
What Is the Formula for Calculating the Internal Rate of Return (IRR)?
The IRR is calculated using the following equation:
NPV = Σ [CFₜ / (1 + IRR)ᵗ] = 0
Where:
Where:
- NPV = Net Present Value
- CFₜ = Cash flow at time t
- IRR = Internal Rate of Return
- t = Time period
How to Interpret IRR Results
- Higher IRR is Better: A higher IRR indicates a more profitable investment
- Compare to Required Return: If IRR exceeds your required rate of return, the investment may be attractive
- Consider Risk: Higher returns often come with higher risks
- Multiple IRRs: Projects with alternating positive and negative cash flows may have multiple IRR solutions
IRR vs Other Financial Metrics
| Metric | Description | Best Used For |
|---|---|---|
| IRR | Rate of return that makes NPV = 0 | Comparing projects of similar size and duration |
| NPV | Present value of cash flows minus initial investment | Absolute value creation assessment |
| ROI | Simple return on investment percentage | Quick profitability assessment |
Investment Decision Guidelines
- IRR > Required Rate of Return: Accept the investment
- IRR < Required Rate of Return: Reject the investment
- IRR = Required Rate of Return: Indifferent (borderline case)
Note: Compare IRR with your cost of capital or benchmark rate (typically 8-12% for most investments).
References
- SEC Guide to Investment Analysis
- U.S. Treasury - Current Interest Rates
- Federal Reserve Economic Data
- Bureau of Economic Analysis - Investment Data
- Investor.gov - Investment Basics
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