IRR Calculator
Calculate Internal Rate of Return for your investments
The Internal Rate of Return (IRR) calculator helps you determine the profitability of an investment by calculating the discount rate that makes the net present value (NPV) of all cash flows equal to zero. IRR is a key metric for comparing different investment opportunities and making informed financial decisions.
IRR Calculation
Enter as positive number (will be treated as negative cash flow)
Cash Flows by Period
Enter positive values for cash inflows, negative for outflows
IRR Analysis
Cash Flow Summary
| Period | Cash Flow | Present Value | Cumulative |
|---|---|---|---|
| 0 (Initial) | -$100,000 | -$100,000 | -$100,000 |
| 1 | +$20,000 | +$17,628 | $-80,000 |
| 2 | +$25,000 | +$19,423 | $-55,000 |
| 3 | +$30,000 | +$20,543 | $-25,000 |
| 4 | +$35,000 | +$21,125 | +$10,000 |
| 5 | +$40,000 | +$21,280 | +$50,000 |
Benchmark Comparison
Investment Analysis
Good IRR of 13.5%. This investment meets or exceeds typical market returns and appears solid.
How to Use
1. Enter your initial investment amount (as a positive number)
2. Add cash flows for each period (positive for inflows, negative for outflows)
3. Select the period type (annual, quarterly, or monthly)
4. Click "Calculate IRR" to see your internal rate of return
5. Compare the result with benchmark rates and investment alternatives
6. Use the analysis to make informed investment decisions
What is IRR?
The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. In simpler terms, it's the rate of return that an investment is expected to generate.
IRR Formula
NPV = Σ [CFt / (1 + IRR)^t] = 0
Where CFt is the cash flow at time t, and IRR is the internal rate of return.
IRR Interpretation
High IRR (>15%)
Excellent investment opportunity. Significantly outperforms market averages.
Good IRR (8-15%)
Solid investment. Meets or exceeds typical market returns.
Moderate IRR (3-8%)
Conservative investment. Better than risk-free rates but below market average.
Low IRR (<3%)
Poor investment. May not justify the risk compared to safer alternatives.
Example Calculation
Real Estate Investment Example:
• Initial Investment: $100,000
• Year 1 Cash Flow: $8,000
• Year 2 Cash Flow: $8,500
• Year 3 Cash Flow: $9,000
• Year 4 Cash Flow: $9,500
• Year 5 Cash Flow: $110,000 (including sale)
• IRR: 12.3%
This investment generates a 12.3% annual return, which exceeds the typical market average.
IRR vs Other Metrics
IRR vs NPV
IRR shows the rate of return, while NPV shows the absolute dollar value created. Both are important for investment decisions.
IRR vs ROI
ROI is simpler but doesn't account for the time value of money. IRR considers when cash flows occur.
IRR vs Payback Period
Payback period shows how long to recover investment, but IRR shows the actual rate of return.
IRR Limitations
Multiple IRRs
Projects with alternating positive and negative cash flows may have multiple IRR solutions.
Reinvestment Assumption
IRR assumes cash flows are reinvested at the IRR rate, which may not be realistic.
Scale Blindness
IRR doesn't consider the size of the investment. A small project might have high IRR but low absolute returns.
Frequently Asked Questions
What's a good IRR for real estate?
Generally 8-12% for rental properties, 15-25% for fix-and-flip projects, depending on risk and market conditions.
Should I choose the investment with the highest IRR?
Not necessarily. Consider the investment size, risk level, and your overall portfolio. Sometimes lower IRR with higher NPV is better.
Can IRR be negative?
Yes, negative IRR means the investment loses money. The more negative, the worse the investment performance.