IRR Calculator
Enter an initial investment and up to six yearly cash flows to find the internal rate of return. The default example returns an IRR of 13.04%.
How the IRR calculator works
The internal rate of return is the discount rate at which the net present value of a series of cash flows equals zero. Put simply, it is the annualized return an investment earns on the money tied up in it, taking the timing of every cash flow into account. A project that pays back sooner has a higher IRR than one returning the same total later.
Enter the year 0 cash flow as a negative number, since it is money you pay out. Then enter the cash you expect in years 1 through 6. Leave unused years at zero. The calculator solves for the rate by bisection: it brackets the answer between a very low and a very high rate and repeatedly halves the range until the net present value is essentially zero.
The formulas
Example: Pay $10,000 now and receive $3,000, $3,500, $4,000 and $3,000 over the next four years. The IRR is 13.04%. Total cash received is $13,500.00, a net gain of $3,500.00 before discounting, or 1.35 back for each dollar invested. These are illustration numbers only.
When there is no answer
An IRR only exists when the cash flows change sign at least once: you need at least one outflow and at least one inflow. If every entry is positive or every entry is negative, the tool shows a message instead of a rate. Cash flows that switch sign more than once, such as a large cleanup cost at the end of a project, can have more than one valid IRR, and this tool reports the one its search finds.
IRR also assumes each cash flow is reinvested at the IRR itself, which can overstate real returns for very high rates. For comparing projects of different sizes, look at net present value as well. The result is an estimate for general information and not investment advice. To check a single-period return, try the ROI calculator.
If the answer seems far too high or too low, check the signs first. A forgotten minus on the initial investment is the most common mistake, and it produces the no-solution message. Also confirm that each yearly entry is the net cash for that year, not a running total.
Tips for entering cash flows
Use consistent periods. This tool assumes each entry is one year apart, so if your cash comes monthly you would need a monthly IRR and then to annualize it. Include every cost, such as repairs, fees and taxes you expect to pay, as negative values in the year they occur. Put the final sale or resale value in the last year with cash. If your project is shorter than six years, leave the rest at zero. Zeros do not change the answer. Comparing the IRR with the return you could earn elsewhere, or with your financing cost, is how most people decide whether the project clears the bar.
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Frequently asked questions
What does IRR mean?
IRR is the discount rate that makes the net present value of all cash flows equal zero. It is the annualized return implied by the cash flows.
How do I calculate IRR in Excel?
List the cash flows in a column, with the investment as a negative first value, and use =IRR(range). For the default example this matches the 13.04% shown above.
Why does the calculator say there is no solution?
IRR needs both a negative and a positive cash flow. If all values have the same sign, no rate can bring the net present value to zero.
Is a higher IRR always better?
Not necessarily. IRR ignores project size and assumes reinvestment at the same rate, so compare it with net present value and your required return.
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