INVESTING GLOSSARY
IRR
Internal Rate of Return
The discount rate that makes the net present value of projected cash flows equal zero.
What does IRR mean?
The discount rate that makes the net present value of projected cash flows equal zero. Professionals may calculate, document or apply this concept differently depending on the transaction, accounting method, lender policy and governing documents. Borrowers should confirm the precise definition used in any term sheet or agreement.
IRR in context
An investment's purchase, annual distributions and sale proceeds may calculate to a 14% IRR.
Why it matters in financing
IRR can influence how a lender, investor or advisor evaluates risk, pricing, structure, repayment capacity or transaction economics. It should be considered together with the complete financial picture rather than used alone.
Related investing terms
Educational information only. This definition is general, may not match a particular lender or contract, and is not financial, accounting, tax or legal advice.