What does IRR stand for?

internal rate of return
IRR stands for internal rate of return. It measures your rate of return on a project or investment while excluding external factors. It can be used to estimate the profitability of investments, similar to accounting rate of return (ARR).

What does the IRR tell you?

The IRR indicates the annualized rate of return for a given investment—no matter how far into the future—and a given expected future cash flow. The IRR is the rate at which those future cash flows can be discounted to equal $100,000.

What is the meaning of the word IRR?

Meaning of “IRR” in the English Dictionary. “IRR” in Business English. › abbreviation for internal rate of return: a calculation that measures how much profit an investment makes, without considering things such as interest rates or inflation: They had made an IRR of about 25%, which was extremely good.

Is the internal rate of return the same as the IRR?

Absolutely, and there have been various measures introduced over the years to turn the IRR into a measure of return on the initial investment. Some of the more popular approaches include the modified internal rate of return (MIRR), the capital accumulation method, and the external rate of return (ERR).

What’s the difference between IRR and discount rate?

IRR assumes that dividends and cash flows are reinvested at the discount rate, which is not always the case. If the reinvestment is not as robust, IRR will make a project look more attractive than it actually is.

How is IRR used to rank investment projects?

As IRR is a uniform calculation for investments and projects of varying types, it can be used to rank different possible undertakings on an equal basis. As previously mentioned, IRR tends to overestimate the potential returns of a project or future investment by making the NPV equal to zero.