Excel Guides

How to Use the IRR Function in Excel

The IRR function in Excel is a financial function that returns the internal rate of return for a given investment. The internal rate of return is the interest rate that makes the net present value of all cash flows from the investment equal to zero. In other words, it's the discount rate that makes the NPV of the investment equal to zero.

To use the IRR function in Excel, you must have at least two positive cash flows. The first cash flow must be negative (the initial investment), and the last cash flow must be positive (the final return).

Here's an example of how to use the IRR function in Excel:

Suppose you're considering investing in a new business venture. The initial investment will cost you $100,000, and you expect to receive cash flows of $30,000 at the end of each of the next three years. Using Excel, you can calculate the internal rate of return for this investment using the following formula:

=IRR(A1:A4)

In this formula, A1:A4 is a range that includes the four cells containing the cash flows for this investment. The first cell in the range (A1) contains the initial investment (-$100,000), and the last cell in the range (A4) contains the final return (+$30,000).

The result returned by this formula is 11.11%. This means that if you invest $100,000 in this venture today, your expected return over three years is 11.11% per year.

Move beyond 

Excel

Get started with Causal today.
Build models effortlessly, connect them directly to your data, and share them with interactive dashboards and beautiful visuals.