This article describes the formula syntax and usage of the IRR function (function: A prewritten formula that takes a value or values, performs an operation, and returns a value or values. Use functions to simplify and shorten formulas on a worksheet, especially those that perform lengthy or complex calculations.) in Microsoft Excel.
Returns the internal rate of return for a series of cash flows represented by the numbers in values. These cash flows do not have to be even, as they would be for an annuity. However, the cash flows must occur at regular intervals, such as monthly or annually. The internal rate of return is the interest rate received for an investment consisting of payments (negative values) and income (positive values) that occur at regular periods.
The IRR function syntax has the following arguments (argument: A value that provides information to an action, an event, a method, a property, a function, or a procedure.):
- Values Required. An array or a reference to cells that contain numbers for which you want to calculate the internal rate of return.
- Values must contain at least one positive value and one negative value to calculate the internal rate of return.
- IRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want.
- If an array or reference argument contains text, logical values, or empty cells, those values are ignored.
- Guess Optional. A number that you guess is close to the result of IRR.
- Microsoft Excel uses an iterative technique for calculating IRR. Starting with guess, IRR cycles through the calculation until the result is accurate within 0.00001 percent. If IRR can't find a result that works after 20 tries, the #NUM! error value is returned.
- In most cases you do not need to provide guess for the IRR calculation. If guess is omitted, it is assumed to be 0.1 (10 percent).
- If IRR gives the #NUM! error value, or if the result is not close to what you expected, try again with a different value for guess.
IRR is closely related to NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value. The following formula demonstrates how NPV and IRR are related:
NPV(IRR(A2:A7),A2:A7) equals 1.79E-09 [Within the accuracy of the IRR calculation, the value is effectively 0 (zero).]
The workbook below shows examples of this function. Inspect them, change existing formulas, or enter your own formulas to learn how the function works.
To work more in-depth with the example data in Excel, download the embedded workbook to your computer, and then open it in Excel.