IRR (Internal Rate of Return)

The discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. Used to evaluate and compare the profitability of multiple projects or investments.

IRR expresses a project’s return as one annualized percentage, which makes it easy to compare against a hurdle rate or between projects. It has quirks — unconventional cash-flow patterns can produce multiple IRRs — so analysts often pair it with NPV rather than relying on it alone.