Internal Rate Of Return
The Internal Rate of Return (IRR) measures the compound annual return of a financial asset, serving as a key tool in Discounted Cash Flow (DCF) analysis. It calculates the rate at which the Net Present Value (NPV) of cash flows equals zero, effectively balancing inflows and outflows. This makes IRR versatile for comparing diverse investments—like stocks, bonds, or real estate—by providing a standardized metric of profitability. By focusing on the inherent return potential of an asset, IRR helps investors evaluate and rank opportunities across different markets or asset classes.
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