Internal Rate of Return (IRR)
Reference model
IRR helps in comparing the profitability of investments.
About this model
The Internal Rate of Return (IRR) is a financial metric used to evaluate the attractiveness of an investment by calculating the rate of return at which the present value of future cash flows equals the initial investment.
Originator not stated.
How to read it
- A higher IRR indicates a more profitable investment.
- Compare IRR against the company's required rate of return.
What this does
Calculates the rate of return at which the net present value of cash flows equals zero, helping to evaluate the profitability of an investment.
When to use it
Use it when assessing the potential return of an investment or project to compare it against the required rate of return.
Not when: Do not use it when cash flows are irregular or when the project has multiple IRRs due to alternating cash flows.
What happens next
Consider using Net Present Value (NPV) analysis to complement IRR findings.
Golden thread
Builds on ←
- Investment description
- Cash flow analysis
Feeds into →
- Investment proposal
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Drafted with AI and reviewed by Eccellere on 04/11/2026. Guidance, not advice: apply your own judgement.