Enter your initial investment and up to 5 yearly cash flows — this solves for the internal rate of return that makes their net present value exactly zero.
This page's own default — $10,000 in, then $3,000, $4,000, $4,000, $3,000, and $2,000 back over five years — nets $6,000 in profit, a simple ROI of 60%. Solved for IRR instead, the answer is 19.25% a year. Neither number is wrong; they answer different questions. 60% is what came back relative to what went in, full stop. 19.25% is the annual rate that, compounded, explains the same result once when each dollar arrived is taken into account — and it is the more useful number for comparing this investment against any other option with its own annual rate.
PV and FV problems with a single lump sum can be rearranged algebraically to isolate the rate. A multi-year, uneven cash flow stream cannot — the rate appears raised to a different power in every term, with no general way to untangle it. That is why this tool, like the Finance Calculator's I/Y solver, searches for the answer instead: it tries a rate, checks whether the resulting net present value lands above or below zero, and narrows the range by half repeatedly until the two sides converge.
Any decision with money going out now and coming back on an uneven schedule benefits from the same treatment IRR gives this one. The Real Estate Investment Calculator applies it to rental income and an eventual sale; discounting a single known future amount back to today at a chosen rate, without solving for the rate itself, is what the Present Value Calculator does instead.
IRR (Internal Rate of Return) is the discount rate at which the net present value of a series of cash flows equals zero. In plain terms, it's the annualized rate of return an investment actually delivers, given its upfront cost and the cash it pays back over time. Investors and businesses use it to compare projects with very different cash flow patterns on one comparable percentage figure.
Simple ROI compares total gain to total cost without regard to when the cash actually arrived, so it can't distinguish between getting your money back in year 1 versus year 5. IRR is time-aware — it explicitly accounts for the timing of each cash flow, so two investments with identical total ROI can post very different IRRs if their cash arrives on different schedules. See the ROI Calculator for the simpler, non-time-weighted comparison.
IRR requires the cash flow stream's net present value to cross from positive to negative somewhere within the search range. If all your cash flows are positive (or all negative), or the total returned never comes close to covering the initial investment even at very high discount rates, there may be no rate that solves the equation — this tool shows "—" with a note in that case rather than an incorrect number.
Not necessarily. IRR can mislead when comparing projects of very different scale or duration — a tiny, fast-payback investment can post an eye-catching IRR while returning far fewer total dollars than a larger, longer project with a lower IRR. Always weigh IRR alongside the total dollar profit and investment size — see the Payback Period Calculator for how quickly a project recovers its cost, a useful companion metric.
Worked example: a $10,000 initial investment returning $3,000, $4,000, $4,000, $3,000, and $2,000 over the following 5 years. Total cash flows returned = $16,000, so net profit = 16,000 − 10,000 = $6,000. Solving for the rate that makes the net present value of that stream exactly zero gives an IRR of approximately 19.25%.
The relationship to present value. IRR is simply the discount rate at which a project’s net present value lands on exactly zero — every IRR is a present-value calculation solved backwards. If you already know the rate you want to test against, discounting the cash flows directly with the present value calculator is the clearer read, because it tells you the size of the gain in money rather than as a percentage.