Internal rate of return (IRR)

The Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of investments or projects. It represents the interest rate at which the present value of future cash flows equals the initial investment cost. In simpler terms, it helps investors understand how much return they can expect to earn from an investment over time. A higher IRR indicates a more attractive investment. Companies often compare the IRR to their required rate of return to make decisions about whether to pursue a project. If the IRR exceeds this benchmark, it’s typically considered a good investment.