IRR — Internal Rate of Return
Definition: The annualized return rate that makes an investment's NPV equal to zero. Used to compare investments on a like-for-like basis.
Example
A PE fund with a 25% IRR over 10 years has roughly 9x'd the original capital. Anything above 20% IRR is considered excellent.
When you'll hear it
IRR shows up most often in board meetings, quarterly business reviews, and strategy off-sites. When someone uses it, they're usually referring to internal rate of return — and they expect the room to already know what that means.
FAQs
What does IRR stand for?
IRR stands for Internal Rate of Return.
What does IRR mean in business and finance?
The annualized return rate that makes an investment's NPV equal to zero. Used to compare investments on a like-for-like basis.
Where will I hear IRR used at work?
IRR comes up most often in board meetings, quarterly business reviews, and strategy off-sites. It's used as shorthand for internal rate of return, so people assume you already know the term.