An Internal Rate of Return Calculator (IRR) takes you to the bottom line of an investment. It can calculate the annualized rate of return on a complicated series of cash flows. Compare the result against what you can earn in a risk-free investment to determine the desirability of a future investment. More below...»
Click on the calculator's "Help" button for usage details. It is VERY important that you understand about dates and cash flows..
In technical terms, IRR is the discount rate that sets all cash inflows and outflows to 0. More weight is given to the earlier cash flows than to the later cash flows because of the time value of money.
This calculator supports irregular length periods and exact date data entry for the cash flows.
Updated Dec. 1 - it turns out this calculator was not working as intended with respect to setting up the cash flow dates. The point of the "Cash Flow Frequency" setting is to give the user a way to initialize the dates in the input area to be as close as possible to those of the investment being annualized. (The selection of frequency of cash flow itself has no impact on the calculated result.) Prior to today, changing the frequency did not change the dates. That changed today. The dates are now setup based on the "Initial Investment Date" after a change in the "Cash Flow Frequency". Also, it is worth pointing out that clicking on "Clear" will also setup the dates and it will clear the inputs as well while changing the cash flow frequency will not clear the inputs. Help goes into a bit more detail.
Calendar Tip: When using the calendar, click on the month at the top to list the months, then, if needed, click on the year at the top to list years. Click to select a year, select a month and select a day. Naturally you can scroll through the months and days too. Or you can click on "Today" to quickly select the current date.
If you prefer not using a calendar, single click on a date or use the [Tab] key (or [Shift][Tab]) to select a date. Then, as mentioned, type 8 digits only - no need to type the date part separators. Also, because the date is selected, you do not need to clear the prior date before typing. If mm/dd/yyyy is selected for the date format, for Dec. 1, 2016, type 12012016.
And one more time: you do not need to enter the cash flows in date order. You have a computer. It and this calculator are smart enough to sort the cash flows for you once you've clicked the "Calc" button. :-)
IRR is the annualized return on investment expressed as a percentage. The investment can be made up of a series of cash flows. That is, there can be more than one investment or one withdrawal. (However, there has to be at least one or each.) The cash flows may occur on any date and for any amount.
It is important to use the right sign (positive or negative) for each cash flow. How do you know what the right sign is? Think of it this way. When you first make an investment, you have to write a check. Writing a check decreases your checking account balance. Therefore, all investment cash flows, including the "Initial Investment" are entered as negative values
When you receive cash back on your investment, you can make a deposit into your checking account. This increases your checking account balance so all returns on your investment, including the final liquidation value of your investment, are entered as positive values.
Every time you change the "Cash Flow Frequency", the dates for the cash flows will be calculated from the "Initial Investment Date". The "Cash Flow Frequency" has no direct impact on the calculated IRR per se. You use this setting to have the calculator create dates for you that most closely match your investment cash flows. If, in general, you only make additional investments (or withdrawals) twice a year, then set "Cash Flow Frequency" to "Semiannually" for example.
If you have the frequency set to say "Monthly", but there are only 4 cash flows in a given year, you can leave 2 cash flows set to 0. Zero amount cash flows have no impact on the calculated IRR. (This is true for 0 cash flow amounts after you've entered the final liquidation value as well.
It is NOT necessary to enter your cash flows in date order. The calculator will sort them prior to calculating the result. This of course is handy if you realize that you missed entering a cash flow. Enter the amount in any available cell, change the date associated with the cell and it will be sorted after you click "Calc".
If you mistakenly duplicate a cash flow, just set one of the duplicates to "0".