Internal Rate of Return

Internal Rate of Return (IRR) is a financial metric that measures the profitability of an investment by identifying the annual percentage rate at which the invested money grows over time, considering all cash inflows and outflows. Think of it as the expected annual return you’d earn if the project or investment performs exactly as projected. If the IRR exceeds your required rate of return or the cost of capital, the investment is considered attractive. It helps compare different projects, but it assumes future cash flows are accurate and can be reinvested at the IRR rate.