IRR Calculator

Worked example: same profit, different IRR

One hundred out, two hundred back. The only difference is when the money returns.

Doubling your money is a good outcome at three years and an ordinary one at six. Whenever someone quotes an IRR without a hold period, the number is incomplete.

Method

The internal rate of return is the annual discount rate that sets the net present value of a cash flow series to zero. There is no closed-form solution for more than two periods, so it is solved iteratively. This calculator solves it the same way a model does: it searches for the rate where discounted inflows equal discounted outflows.

Year 0 is the investment, entered as a negative number. Every later year holds the cash actually received in that year, including a dividend recap, a partial realization, or the final exit proceeds. Interim years can be zero. The NPV column uses the discount rate you set, which is useful when a fund has a stated cost of capital or a hurdle to clear. MOIC divides total inflows by total outflows and ignores timing entirely, which is why the two metrics are read together.

1. 1. Enter the year 0 investment

   Equity out at close, entered as a negative amount.

2. 2. Enter each year of proceeds

   Include recaps and partial realizations in the year they land. Zero is valid.

3. 3. Set a discount rate

   Use your hurdle or cost of capital so NPV is meaningful alongside IRR.

4. 4. Read IRR with MOIC

   IRR shows speed, MOIC shows magnitude. Judge the deal on both.

IRR rewards speed. The same MOIC earned in three years produces a much higher IRR than one earned in six, which is why sponsors care about time to first distribution and why a dividend recap can lift IRR without changing total profit much. That sensitivity is also the metric's weakness. A small early distribution can inflate IRR while returning little capital, so a strong IRR paired with a weak MOIC deserves questions about how much money was actually made. Two further mechanics matter in practice. First, a cash flow series that changes sign more than once can produce multiple mathematically valid IRRs; when that happens, NPV at a stated discount rate is the more reliable comparison. Second, deal-level gross IRR is not fund-level net IRR, because management fees, carry, and fund expenses sit between the two. When you compare your number to a published benchmark, confirm you are comparing gross to gross or net to net. Use this calculator to build intuition for how timing moves the number, then pressure-test the underlying operating assumptions in a full deal workspace rather than the return math alone.

Related

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