FinCalcs

Profit & Margin

IRR Calculator

Find the internal rate of return of a project.

IRR Calculator

All math runs locally in your browser. Nothing is uploaded.

How it works

The internal rate of return is the discount rate that makes a series of cash flows worth exactly zero. It is the yield a project earns on the money tied up in it, expressed as a percentage per period.

Compare the IRR to your required return: if the IRR is higher, the project beats the hurdle. The calculator finds the rate by iterating until the discounted sum converges to zero.

Formula

Find r such that Σ CFt / (1 + r)t = 0

Solved numerically by bisection. The first cash flow is typically the negative initial investment.

Worked example

Example: cash flows −10,000, 3,000, 4,000, 4,000, 3,000. The IRR is about 14.5%. Since 14.5% exceeds a 10% cost of capital, the project earns a healthy spread.

WORKED EXAMPLE — DEFAULT INPUTS

Cash flows5 periods
IRR14.90%

What to know

IRR and NPV answer different questions. NPV asks: at my required return, does this project create dollar value? IRR asks: what rate does this project actually earn? Use IRR as the headline yield, but use NPV to choose between competing projects, because IRR can rank them incorrectly when investment sizes differ.

A project with a 30% IRR but a tiny size can lose to a 15% IRR project that returns many more dollars. The percentage sounds better; the dollars decide. This is why disciplined teams report both numbers together.

Pair the IRR with the dollar NPV from the companion page: the percentage tells you the yield, the dollars tell you whether it is big enough to matter to your business.

FAQ

Why does IRR need a negative first cash flow?

The method needs at least one negative and one positive value to converge on a real rate. A project that only produces positive cash flows has no finite IRR.

IRR vs NPV, which should I trust?

NPV for choosing between projects, because IRR can mislead when cash flows change sign more than once. IRR is the better headline number for reporting a yield.

What if my cash flows flip sign several times?

The project may have multiple IRRs. In that case prefer NPV, or check the rate closest to your cost of capital.

Is the result annual?

The rate matches the period of your cash flows. Monthly flows give a monthly IRR, which you can annualize with the compound interest formula.