How to use this calculator
Enter the cash going out and the cash coming back.
- Initial investment: the amount paid at the start.
- Cash flows for years 1 to 5: the net cash you expect to receive each year. Enter zero for years with nothing coming in. If you plan to sell the asset, add the sale proceeds to the final year.
The calculator returns the IRR, the total cash returned, the net gain and the return multiple. The chart tracks cumulative cash flow, starting below zero at the size of the investment and rising as cash comes back.
Worked example
These are the starting values in the calculator above and the results they give. Change any input to see your own numbers.
- Initial investment
- $100,000
- Cash flow, year 1
- $25,000
- Cash flow, year 2
- $30,000
- Cash flow, year 3
- $35,000
- Cash flow, year 4
- $35,000
- Cash flow, year 5
- $30,000
- Internal rate of return
- 15.95%
- Total cash returned
- $155,000
- Net gain
- $55,000
- Return multiple
- 1.55×
How IRR is calculated
The internal rate of return is the discount rate at which the present value of the future cash flows equals the initial investment. Put another way, it is the rate that makes net present value exactly zero.
There is no simple formula that solves for IRR directly. The calculator finds it by trial and error: it tests a rate, checks whether the net present value is above or below zero, adjusts the rate and repeats until the answer settles.
The other outputs are simple sums.
- Total cash returned: the five yearly cash flows added together.
- Net gain: total cash returned minus the initial investment.
- Return multiple: total cash returned divided by the initial investment. A multiple of 1.5 means you got back $1.50 for every $1 invested.
0 = −I + CF1 ÷ (1 + IRR)^1 + CF2 ÷ (1 + IRR)^2 + ... + CF5 ÷ (1 + IRR)^5- I
- initial investment
- CF1 to CF5
- cash flow in each of years 1 to 5
- IRR
- the yearly rate that makes the equation balance, found by trial and error
How to read the results
Compare the IRR with your hurdle rate, the minimum return you require. Many businesses use their cost of capital. An IRR above the hurdle suggests the project earns more than it costs to fund. An IRR below it suggests the opposite.
IRR and the return multiple answer different questions. The multiple shows how much money came back in total and ignores time. IRR accounts for timing, so cash that arrives early raises it. Two projects with the same multiple can have very different IRRs.
Keep these limits in mind.
- IRR ignores scale. A small project with a high IRR can add fewer dollars than a large project with a lower one.
- IRR assumes cash received along the way can be reinvested at the same rate, which may be optimistic when the rate is high.
- If cash flows switch between positive and negative more than once, there can be more than one IRR or none.
- If total cash returned is less than the investment, the IRR is negative.
For these reasons, IRR is best read next to a dollar measure. Run the same cash flows through the NPV calculator, and see NPV vs IRR for how the two methods compare.
Frequently asked questions
What is IRR in simple terms?
IRR, or internal rate of return, is the average yearly return an investment earns once the timing of every cash flow is taken into account. Technically, it is the discount rate that makes the value today of all future cash flows equal to the amount invested. It lets you compare projects with different sizes and cash flow patterns using a single percentage.
What is a good IRR?
A good IRR is one that is higher than your required return for that level of risk. For a business, that is usually its cost of capital plus a safety margin. Riskier ventures need a higher IRR to be worth it than stable, predictable ones. There is no universal number, because acceptable returns vary by industry, project type and investor.
What is the difference between IRR and ROI?
ROI compares total gain with the amount invested and ignores how long the gain took. IRR is a yearly rate that accounts for when each cash flow arrives. An investment that doubles your money has the same ROI whether it takes two years or ten, but its IRR is far higher over two years. IRR is more useful when timing matters.
Can IRR be negative?
Yes. IRR is negative when the total cash an investment returns is less than the amount put in. A negative IRR means the investment loses value each year on average. If no cash comes back at all, there is no meaningful IRR to report. A negative result is a clear sign that the project does not recover its cost on the forecast given.
Why do NPV and IRR sometimes disagree?
For a single project with one upfront cost, they normally agree: a positive NPV goes with an IRR above the discount rate. They can disagree when ranking two projects that differ in size or in the timing of their cash flows. IRR favors fast, small returns, while NPV measures total dollars of value. Most finance textbooks recommend following NPV in a conflict.
This calculator gives estimates for education only. It does not know your full situation and is not financial advice. Reviewed and updated November 15, 2026.