IRR Calculator
The internal rate of return of any series of cash flows, with NPV, payback and money multiple. Yearly or monthly, any currency.
Investing 10,000 and getting back 2,500, 3,000, 3,000, 3,000 and 2,500 over five years is an IRR of 12.34% a year. At an 8% discount rate its NPV is $1,175, so it beats 8%.
The words on this page, explained simply
New to this? Here is what each term means, in plain English.
- IRR (internal rate of return)
- The yearly rate at which all of an investment's cash flows are worth zero today.
- NPV (net present value)
- All cash flows discounted to today at your required return; positive means the investment beats it.
- Payback period
- How long until the cash you get back equals the cash you put in.
IRR (internal rate of return) is the yearly rate at which an investment's cash flows add up to zero once each is discounted back to today. It answers: what rate of return did this money really earn, counting when each amount came in or went out?
Enter the money you put in as negative numbers and what you get back as positive ones, one per period. The NPV uses your own required return: positive means the investment beats it.
The IRR formula
IRR is the rate r that solves CF₀ + CF₁/(1+r) + CF₂/(1+r)² + … + CFₙ/(1+r)ⁿ = 0. There is no closed formula, so it is found by trial: the calculator narrows r down by bisection until the sum is zero to many decimal places. With monthly cash flows, the monthly IRR is turned into a yearly rate as (1 + monthly)¹² − 1.
NPV = the same sum at your chosen rate. If NPV is positive, the IRR is above that rate; negative, below it.
IRR, XIRR and CAGR
IRR assumes equally spaced cash flows. For irregular dates, such as SIP instalments or a portfolio with deposits on random days, use the XIRR calculator. For a single amount in and out, IRR equals the CAGR.
When cash flows change sign more than once (invest, receive, invest again), more than one IRR can exist, and NPV is the safer guide. The calculator warns when this happens.
Key takeaways
- IRR is the rate at which the NPV of all cash flows is zero.
- Money in is negative, money back positive, one value per period.
- NPV > 0 at your required return means the investment beats it.
- Irregular dates need XIRR; one amount in and out is CAGR.
Frequently asked questions
How do you calculate IRR?
Find the discount rate that makes the net present value of all cash flows zero. It is solved by trial (Excel's IRR does the same); this calculator uses bisection to many decimal places.
What is a good IRR?
One above your cost of money or the return you could get elsewhere at similar risk. Comparing it with a stock-market index return or your loan rate is common.
What is the difference between IRR and NPV?
NPV is an amount: what the cash flows are worth today at your chosen rate. IRR is a rate: the return at which that amount would be zero.
What is the difference between IRR and XIRR?
IRR assumes each cash flow is one period apart. XIRR takes an exact date for each cash flow, so it suits irregular investments such as SIPs.