Does an investment return 15% a year or 6%? The figure that answers this question is the IRR, the internal rate of return: the most widely used measure in the world to evaluate projects, real estate, funds and private equity deals. The IRR condenses into a single percentage the compound annual return that an investment produces over time, accounting for when the cash flows arrive. The IRR calculator estimates the internal rate of return of an investment with constant annual flows, compares it with your hurdle rate, and tells you the NPV, the multiple on capital and whether the deal is worthwhile. It is the tool with which banks and investors decide where to put their money.

What the IRR (internal rate of return) is

The IRR (Internal Rate of Return) is the discount rate that makes the net present value (NPV) of a series of cash flows equal to zero. In simple words: it is the compound annual return that exactly balances what you invest with what you receive, discounted to the present. If a project's IRR is 15%, it means the investment returns as if you had put the money in an account at 15% compound per year. It is the return measure that accounts for the time value of money: a thousand received today is worth more than a thousand in five years, and the IRR incorporates this principle.

How the IRR is calculated

The IRR is the rate r that solves the equation: initial investment = sum of the future flows discounted at r. Unlike other measures, it has no closed formula: it is found by trial (numerical iteration), trying different rates until the NPV reaches zero. The calculator uses constant annual cash flows and searches, with a bisection method, for the rate that balances the accounts. With an investment of 100,000 that generates 30,000 a year for 5 years, the IRR is about 15.24%: it is the rate at which the sum of the five 30,000 flows, discounted, equals the initial 100,000.

The link between IRR and NPV

IRR and NPV (net present value) are two sides of the same coin. The NPV discounts the flows at a given rate (your hurdle rate) and tells you how much value the investment creates in today's money: if positive, the project is worthwhile. The IRR is the particular rate at which the NPV becomes exactly zero. The decision rule links them: if the IRR exceeds the hurdle rate, the NPV at that rate is positive and the project creates value; if the IRR is below the threshold, the NPV is negative. In our example, with IRR 15.24% and hurdle rate 10%, the NPV is positive (about 13,724): the investment is worthwhile.

The hurdle rate

The hurdle rate is the minimum return you demand from an investment for it to be worthwhile: below that threshold, better to leave the money elsewhere. It often coincides with the cost of capital (how much it costs to finance the investment) or with the return of an alternative at the same risk. A company might use 10%, a real estate investor 7%, a venture capital fund 25%. The rule is simple: accept if IRR ≥ hurdle rate, reject if IRR is below. The calculator lets you enter your threshold and tells you immediately whether the IRR exceeds it, with an instant assessment.

How to interpret the IRR

The IRR must always be read relative to a reference: an IRR of 12% is excellent for a low-risk property, mediocre for a high-risk investment. Compare it with: your hurdle rate, the return of alternatives at the same risk, the cost of debt. An IRR well above the threshold signals an attractive opportunity; an IRR close to the threshold is marginal (the safety margin is thin); an IRR below the threshold says to reject. Be careful though: the IRR rewards projects that return capital quickly and says nothing about the absolute size of the gain, so it must always be paired with the NPV.

IRR and multiple on capital

Alongside the IRR, investors look at the multiple on capital (MOIC, or "gross multiple"): how many times the investment returns the capital, in nominal terms. With 100,000 invested and 150,000 of total flows, the multiple is 1.5x. Multiple and IRR tell different things: the multiple measures how much you earn in total, the IRR measures how quickly. A project can have a very high IRR but a low multiple (you earn little, but quickly) or a high multiple with a modest IRR (you earn a lot, but over many years). The two indicators together give the complete picture of an investment.

IRR versus ROI and average return

Many confuse the IRR with the simple ROI or the average annual return. The difference is the time value. The total ROI (gain / capital) on our example is 50% over 5 years, which divided by the years would give a naive 10% a year. But the real IRR is 15.24%, higher, because the flows arrive every year and can be reinvested, not all at the end. The IRR is a compound rate sensitive to timing: bringing the flows forward increases it, delaying them reduces it, for the same total. This is why it is more correct than the average return for comparing investments with different time profiles.

Typical IRRs by type of investment

A "good" IRR depends on risk; here are some indicative market references (they vary a lot):

These are generic references: higher risk corresponds to a higher expected IRR. An IRR must always be compared with alternatives at the same risk, not in absolute terms.

How the IRR varies with the flows

With an investment of 100,000 over 5 years, the IRR grows with the annual flow:

When the total flows just equal the capital (100,000), the IRR is zero: you recover the invested amount without gain. Every extra euro of flow pushes the IRR up in a non-linear way.

The effect of duration on the IRR

With the same annual flow (30,000) and capital (100,000), more years of flows raise the IRR:

Each additional year of constant flow increases the IRR, because the same capital keeps producing return. Duration is a lever as powerful as the size of the flows.

The limits of the IRR

The IRR is powerful but has traps. First: it assumes the received flows are reinvested at the same IRR, an often unrealistic assumption (this is why the MIRR, modified IRR, exists). Second: with flows that change sign several times (intermediate outflows) there can be multiple IRRs or none. Third: the IRR ignores the size: a small project with a 40% IRR can create less absolute value than a large one at 15%. Fourth: it favors short projects. This is why the IRR must always be used together with the NPV and the multiple, never alone. The calculator, using constant positive flows, avoids the problem of multiple IRRs.

IRR with non-constant flows

In reality cash flows are rarely constant: a property may have vacant years, a company growing flows, a fund returns concentrated at the end. This calculator uses a constant annual flow, a useful approximation for quick estimates and for stable-income projects (rents, bonds, fees). For flows that vary year by year you need a calculation with the full series of flows (often in a spreadsheet or with the IRR function of Excel). As an approximation, you can use the average annual flow for a rough estimate of the IRR, keeping in mind that the real timing of the flows can shift the result.

IRR in private equity and real estate

The IRR is the queen metric in private equity, venture capital and real estate investments. Funds are sold and measured on the IRR: a buyout fund targets an IRR of 20-25%, a "core" real estate fund 7-10%, a "value-add" or "opportunistic" one 15-20%+. In real estate the project IRR considers the purchase, the annual rents and the final resale. Be careful: fund IRRs can be inflated by early flows or by the use of leverage, and an IRR annualized over a few months must be read with caution. It is always good to pair the IRR with the multiple (MOIC) and the effective duration of the investment.

IRR, inflation and real return

The calculated IRR is a nominal return: it does not account for inflation. With an IRR of 15% and inflation of 3%, the real return (purchasing power) is about 12% (more precisely (1.15/1.03) − 1 = 11.65%). Over long horizons, inflation erodes an important slice of the return: an IRR of 5% with inflation at 4% leaves barely 1% real. When you compare the IRR with your hurdle rate, make sure they are consistent: both nominal or both real. The calculator works in nominal terms; for the real return, subtract (approximately) the expected inflation from the IRR.

How the calculator works

Enter the initial investment, the constant annual cash flow, the duration in years and your hurdle rate. The calculator finds by iteration the IRR that zeroes the NPV of the flows, and returns: the internal rate of return, the NPV at your hurdle rate (in today's money), the total nominal cash flows, the gross multiple on capital and an assessment that compares the IRR with the threshold. In a few seconds you have the complete picture of the investment's return.

The data you need

You need four data. The initial investment: how much you put in at the start (the cash outflow at time zero). The annual flow: how much you receive each year (net profit, rent, distribution). The duration: for how many years you receive the flows. The hurdle rate: the minimum return you demand, usually the cost of capital or the return of an alternative at the same risk. If your flows vary a lot year by year, use the average flow as an approximation, knowing that the real timing can change the IRR.

Common mistakes

• Confusing the IRR with the simple ROI: the IRR is compound and accounts for timing.
• Using the IRR alone, ignoring the absolute size of the gain (NPV).
• Forgetting that the IRR assumes reinvestment of the flows at the same rate.
• Comparing a nominal IRR with a real hurdle rate (or vice versa).
• Trusting an IRR annualized over a few months or inflated by leverage.

How to use the calculator

Enter the four data and read the IRR: it is the compound annual return of the investment. Compare it with the hurdle rate: the assessment tells you immediately whether it is worthwhile. Look at the NPV to understand how much value it creates in today's money, and the multiple to know how many times you recover the capital. Simulate different scenarios by changing the flow or the duration to see how sensitive the IRR is. Remember: the IRR is nominal, must be compared with consistent thresholds, and for non-constant flows use the full series. It is an estimation tool, not a guarantee of return.

Practical example

You are evaluating the purchase of a small income property: initial investment 100,000, generating a net rent of 30,000 a year for 5 years, with a hurdle rate of 10%. The calculation gives an IRR of 15.24%, an NPV at 10% of about 13,724, total flows of 150,000 and a multiple of 1.5x: the assessment is "very attractive", because the IRR clearly exceeds the threshold. The investment creates 13,724 of value in today's money beyond returning the required capital. If the rent were 20,000, the IRR would drop to about 0% (you only recover the capital): it would not be worthwhile. Enter your numbers. The calculation uses constant annual cash flows and is an estimate: the real IRR depends on the actual timing of the flows, assumes reinvestment at the same rate, is nominal (does not remove inflation) and does not consider risks, taxes and costs. It is not financial advice; for investment decisions evaluate with a professional.

Frequently asked questions

What is the IRR (internal rate of return)?

It is the discount rate that makes the net present value (NPV) of an investment's cash flows equal to zero. In practice it is the compound annual return of the deal, accounting for when the flows arrive. An IRR of 15% means the investment returns like an account at 15% compound per year.

How is the IRR calculated?

The IRR is the rate at which the initial investment equals the sum of the discounted future flows. It has no closed formula: it is found by numerical iteration. The calculator uses constant annual flows and, with bisection, searches for the rate that zeroes the NPV.

What is the difference between IRR and NPV?

The NPV discounts the flows at a given rate and says how much value the investment creates in today's money. The IRR is the particular rate at which the NPV is exactly zero. If the IRR exceeds the hurdle rate, the NPV at that rate is positive: the project is worthwhile.

What is the hurdle rate?

It is the minimum return you demand from an investment for it to be worthwhile. Often it is the cost of capital or the return of an alternative at the same risk. The rule: accept if IRR ≥ hurdle rate, reject if below. The calculator compares the IRR with your threshold.

Is an IRR of 15% good?

It depends on the risk. 15% is excellent for a low-risk property, mediocre for venture capital (which targets 25-40%). The IRR must always be compared with alternatives at the same risk and with your hurdle rate, never in absolute terms. An IRR well above the threshold is attractive.

What is the difference between IRR and ROI?

The simple ROI is gain / capital, without accounting for timing. The IRR is a compound rate sensitive to when the flows arrive. On 100,000 returning 30,000 for 5 years, the naive annual ROI would be 10%, but the real IRR is 15.24%, higher because the flows arrive every year.

What is the multiple on capital (MOIC)?

It is how many times the investment returns the capital, in nominal terms (total flows / capital). With 100,000 invested and 150,000 of flows, the multiple is 1.5x. The multiple says how much you earn in total; the IRR says how quickly. They must be read together.

What are the limits of the IRR?

The IRR assumes reinvestment of the flows at the same rate (often unrealistic), can be multiple with flows that change sign, ignores the absolute size of the gain and favors short projects. It must always be used together with the NPV and the multiple, never alone.

Does the calculator handle variable flows?

No, it uses a constant annual flow, useful for stable-income projects (rents, bonds, fees) and for quick estimates. For flows that differ year by year you need the full series (Excel IRR function). As an approximation, you can use the average annual flow.

Does the IRR account for inflation?

No, the calculated IRR is nominal. With an IRR of 15% and inflation of 3%, the real return is about 12% (more precisely (1.15/1.03)−1 = 11.65%). Always compare the IRR with a consistent hurdle rate: both nominal or both real.

What does a negative IRR mean?

It means the total flows do not even recover the invested capital: you are losing money in terms of return. With 100,000 invested and total flows of 75,000, the IRR is negative. The calculator also handles negative IRRs.

Why do more years of flows raise the IRR?

Because the same capital keeps producing return. With 100,000 and 30,000 a year, the IRR is 7.7% at 4 years, 15.2% at 5 years, 19.9% at 6 years. Duration is a lever as powerful as the size of the flows.

Is it financial advice?

No, it is an informational tool. It uses constant flows, the real IRR depends on the actual timing, assumes reinvestment at the same rate, is nominal and does not consider risks, taxes and costs. For investment decisions consult a professional.

Updated July 2026