IRR
Category: Finance functions
Overview
Description | Internal rate of return (IRR) is a metric of profitability for potential investments. Internal rate of return is a discount rate that sets the net present value (NPV) of all future cash flows of the investment equal to zero. An approximate solution is found using numerical iteration. Use this when you need to find the discount rate at which an investment's cash flows break even (NPV = 0). |
Syntax |
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Parameters |
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Example
IRR of a project with mixed cash flows
This example calculates the internal rate of return for a project with an initial investment and subsequent positive cash flows.
Input node: CF
| Year | Value |
|---|---|
| 2025 | -10000 |
| 2026 | 1155 |
| 2027 | 5000 |
| 2028 | 7000 |
Our goal is to find a discount rate with which the discounted cash flows sum up to zero:
Formula: IRR('CF')
| Year | → IRR Result |
|---|---|
| 2027 | -23% |
| 2028 | 12% |
The IRR function tells us the rate is 12%. The result for cash flows up to year 2027 is not interesting for us and can be filtered out with the FILTER function.
Related Functions
| Function | When to use instead |
|---|---|
| NPV | When you need the net present value at a known discount rate rather than solving for the rate. |
| CAGR | When you need compound growth over N periods rather than the break-even discount rate. |