What does IRR tell me, in one sentence?

The annualized rate of return at which the present value of everything a project pays you exactly equals everything you put in — its break-even rate of return after accounting for the time value of money. Above your required rate (hurdle rate / cost of capital), the project creates value; below it, it destroys value.

Why can there be more than one IRR?

IRR is a root of a polynomial. Every time the cash-flow series changes sign (outflow → inflow → outflow, say), another root becomes possible. Conventional projects (one outflow, then inflows) have exactly one. When multiple roots exist, this calculator reports them and the NPV profile chart is the safer guide.

IRR or NPV — which should decide?

They agree on single conventional projects, but they can rank competing projects differently: IRR is a percentage and blind to scale, while NPV measures actual value created. A small project at 40% IRR can add less wealth than a large one at 15%. Professionals quote IRR for comparability and let NPV arbitrate conflicts.

My cash flows aren't annual — which calculator do I use?

For dated deposits and withdrawals on arbitrary dates, the Average Return Calculator solves the same money-weighted rate (an XIRR). The irregular-flow calculator here assumes one flow at each year-end.

Internal Rate of Return (IRR) Calculator

IRR is the discount rate that makes a project's net present value exactly zero — its break-even rate of return. Compute it for a fixed recurring cash flow, or for irregular annual cash flows.

1 · IRR Based on Fixed Cash Flow

An initial investment, a fixed deposit or withdrawal every period, and an ending balance. (Set the periodic amount to 0 for no cash flow.)

Initial Investment

Holding

years

months

Ending Balance

Periodic Cash Flow

Frequency

Paid at the

beginning end of each period

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2 · IRR Based on Irregular Cash Flow

An initial investment plus one cash flow at each year-end. Positive = money back to you; negative = more money in. (Cash flows on arbitrary dates? Use the Average Return Calculator.)

Initial Investment

Cash Flow by Year:

Understanding IRR

Every project proposal arrives as the same shape: money out now, a forecast stream of money back later, and some risk that the stream disappoints. The internal rate of return compresses that whole shape into one number. Formally, IRR is the discount rate at which the net present value of all the project's cash flows equals zero: future inflows, discounted for the time value of money (a dollar today outranks a dollar tomorrow), exactly repay the outlay. Read it as the project's break-even rate of return. Clear the hurdle — the company's required rate of return, or its cost of capital — and the project earns more than it costs; fall short, and the forecast doesn't justify the money.

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The math (and why a calculator does it)

0 = Σ_t CF_t / (1 + r)^t — solve for r

CF_t is the cash flow in period t (the initial investment, CF₀, is negative), and r is the IRR. It's the NPV formula run in reverse: instead of plugging in a rate to get a value, you hunt for the rate that makes the value zero. Beyond three or four periods there's no tidy algebraic solution, so analysts iterate — financial calculators, spreadsheets, and this page all converge on r numerically, which is also why our second calculator shows the NPV profile: you can watch NPV fall through zero exactly at the IRR.

Where IRR earns its keep

Investment decisions: a single comparable rate against the hurdle rate.

Capital budgeting: ranking competing projects; higher IRRs get funded first (with the scale caveat below).

Loans and leases: the true annualized cost of a financing structure, fees included.

Private equity and venture capital: the industry's headline performance measure, since funds return cash irregularly over years.

Real estate: purchase price, rent, costs and eventual sale folded into one rate — our rental property calculator reports an IRR for exactly this reason.

Two examples worth internalizing

The machine: $40,000 buys equipment returning $10,000, $20,000 and $30,000 over three years. Entered in the irregular calculator above, the IRR is 19.438%. Against a 12% cost of capital it's an easy yes; against 20%, the same machine fails its hurdle — the project didn't change, the price of money did. The tie that IRR breaks: two properties each cost $100,000 and each pay $150,000 total over five years — identical 50% simple ROI. But A pays 5/20/25/40/60 while B pays 0/10/30/30/80. A's earlier cash wins: IRR 11.290% vs 10.259%. Money sooner can be reinvested and carries less risk; ROI is blind to that, IRR is built from it.

The limitations, honestly

Blind to scale: 40% on $1,000 is $400; 15% on $1,000,000 is $150,000. IRR alone can't tell you which made you richer — NPV can.

Risk is outside the number: IRR treats forecast flows as certain. A safe 12% can beat a coin-flip 19%.

Reinvestment assumption: the math implicitly reinvests interim flows at the IRR itself — flattering for very high IRRs. MIRR exists to fix exactly this.

Multiple IRRs: flows that change sign more than once (out, in, out again) can produce several rates that zero the NPV. When that happens here, we list them all and the NPV profile is the tiebreaker.

So IRR is a lens, not a verdict — professionals pair it with NPV, MIRR, or the payback period before committing real money.

FAQ

What IRR is "good"?

There is no universal good IRR — only IRR relative to your hurdle rate and to the risk. A project clearing its cost of capital by a wide margin with dependable flows is good; the same number on speculative flows may not be.

Can IRR be negative?

Yes — it means the project returns less than was put in, even before discounting for time. The solvers here search well into negative territory and report it plainly.

Why does the fixed-flow calculator show a per-period rate?

Because the compounding clock there is the payment period, not the year. The headline IRR is the effective annual rate; the period rate is what each individual period earns.

Disclaimer: This calculator provides estimates for educational purposes only and does not constitute financial advice.