What IRR measures
IRR is the annualized discount rate at which the net present value (NPV) of a series of cash flows equals zero. In other words, it is the rate that makes the present value of the money coming in equal to the present value of the money going out.
A higher IRR can indicate a more attractive investment, but IRR is a rate, not a dollar amount. It is best considered alongside other measures and assumptions, such as a required return, borrowing cost, investment risk, or another investment's IRR.
Multiple Cash Flows
Enter one cash flow per period. Period 0 is the starting point — typically the initial investment, entered as a negative number — and isn't discounted at all. Period 1 is one period out, Period 2 two periods out, and so on. This matches how spreadsheet IRR functions treat the first value in a list.
Period 0: −5,000 Period 1: 20,000 −5,000 + 20,000 ÷ (1 + r) = 0 → r = 20,000 ÷ 5,000 − 1 = 300% When more than one IRR exists
A cash flow sequence with more than one sign change — money going out, then in, then out again, for example — can genuinely have more than one valid IRR. This isn't a calculation error; it's a known mathematical property of the IRR equation itself. When this calculator finds more than one, it shows all of them rather than picking one arbitrarily, since there's no single "correct" answer to choose without more context about the investment.
Period 0: −1,000 Period 1: 5,000 Period 2: −6,000 Both 100% and 200% satisfy the equation exactly Recurring Annual Cash Flow
For a simpler case — an investment that pays (or costs) the same amount every year — enter the initial investment, the number of years, and the annual cash flow. Add a final value if the investment is sold or matures for a lump sum at the end; that amount is added on top of the last year's regular cash flow.
If there are no intermediate cash flows, the calculation reduces to a plain compound annual growth rate:
IRR = (Final Value ÷ Initial Investment)1 / Years − 1 Example: 100,000 → 150,000 over 5 years → IRR = 8.45% Frequently asked questions
Why is Period 0 not discounted?
Period 0 represents "now" — typically the moment the initial investment is made, which happens today and isn't reduced for time value. Each subsequent period represents one more full period of waiting, which is what gets discounted.
What's the difference between this and the Average Return Calculator?
IRR uses equally spaced periods such as Period 0, Period 1, Period 2, and so on. The Average Return Calculator's "Based on Cash Flow" tab works from actual calendar dates instead, which can be useful when deposits and withdrawals occur at irregular times.
Why do I need at least one negative and one positive cash flow?
IRR is the rate that makes the cash flows balance to zero. If every cash flow points the same direction — all money going out, or all money coming in — there is no conventional IRR solution for that cash-flow pattern.
Why does my cash flow pattern show more than one IRR?
Cash flows that change direction more than once — negative, then positive, then negative again, for example — can satisfy the IRR equation at more than one rate. All of them are mathematically valid; none is more "correct" than the others without additional assumptions about the investment, like an expected reinvestment rate.
Can an IRR exist even without a sign change between nearby rates?
Yes. An IRR can occur where the NPV curve touches zero and turns around instead of crossing through zero. This is sometimes called a tangent or repeated root. The calculator checks for these cases as well as the more common roots where NPV changes sign.