How to better understand and use IRR

IRR is also known as internal rate of return, and the popular explanation is that the higher the internal rate of return, the lower the cost of input, and the more benefits can be obtained at this time. In addition, IRR can also be understood as a discount rate that determines whether a project is accepted or not, but does not adapt to the actual situation. Both of these understandings can be considered popular interpretations.

IRR is essentially a discount rate like Oak, for example, borrowing money at an interest rate of 8% to invest in a project, and Green Oak changes to an IRR of 8%, then the project just does not make money or lose.

IRR is the internal rate of return, also known as the internal rate of return, and the rate of return that the project investment can actually achieve. Essentially, it is the discount rate at which the net present value of the item is equal to zero. It is the discount rate when the total present value of the capital inflow is equal to the total present value of the capital flow and the net present value is equal to zero.

If an electronic computer is not used, the internal rate of return is tried using a number of discount rates until the discount rate at which the net present value is equal to or close to zero is found.

IRR is often used in the calculation of the actual interest rate of the loan, such as borrowing 12,000 yuan, repaying in 12 installments, repaying 1,100 yuan per month (1,000 yuan principal plus 100 yuan interest), the total interest is 1,200 yuan, then the nominal interest rate is 1200 12,000 = 10%, but this is not the actual cost of our borrowing, because the loan principal has not been used up for the entire borrowing cycle, in this case, you can use IRR to calculate the actual loan interest, you can open an excel, Enter "12000" in column A1, "-1100" in column A2-A13, and "=IRR(A1:A13)*12" in column B1 to calculate the actual borrowing interest rate, which is much higher than the nominal interest rate of 10%.

Similarly, we can also use the IRR to calculate the true interest rate of our credit products. For example, we enter the loan amount of 10,000 yuan on the Money Spend page of Du Xiaoman Financial APP, select the equal principal and interest repayment method for repayment, the page shows that the monthly repayment of yuan is required, continue to apply the above formula, A1 input 10,000, A2 input, A3 input, and so on to fill in to A13, to get the internal rate of return of 12 installments about, because the interest of Du Xiaoman does not include the principal that has been repaid before, the central bank clearly stipulates that the interest should be calculated by the internal rate of return method to calculate the annualized interest rate of the loan. Compared with the above installment purchase of mobile phones, it is more suitable to buy it if you take out a loan on a platform like Du Xiaoman Finance.

IRR: Internal Rate of Return (IRR) is the discount rate when the present value of the total inflow is equal to the total present value of the flow and the net present value is equal to zero.

In general, the project is feasible when the internal rate of return is greater than or equal to the benchmark rate of return. The sum of the discounted value of the annual cash flows of the investment project is the net present value of the project, and the discount rate when the net present value is zero is the internal rate of return of the project. In the economic evaluation of the project, the internal rate of return is divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR) according to different levels of analysis.

Internal rate of return (IRR) refers to the rate of return that can actually be achieved by the investment of a project. Essentially, it is the discount rate at which the net present value of the item is equal to zero. IRR satisfies the following equation:

The general method of calculating the IRR is the case-by-test method.

When the net cash flow of the project after it is put into operation is in the form of an ordinary annuity, the present value coefficient of the annuity can be directly used to calculate the internal rate of return, and the formula is:

p/a，irr，n）=1/ncf

2.The advantage of the internal rate of return is that it can directly reflect the actual income level of the investment project from a dynamic perspective, and it is not affected by the industry benchmark rate of return, which is more objective. The disadvantage is that the calculation process is complicated, especially when a large amount of additional investment is made during the operating period, which may lead to multiple IRRs, which may be high or low, which is of no practical significance.

Only investments whose IRR is greater than or equal to the industry benchmark rate of return or cost of capital are financially viable.

Profit on investment.

1.The return on investment, also known as the rate of return on investment (recorded as ROI), refers to the percentage of the normal annual profit or average annual profit to the total investment during the production period. It is calculated as follows:

Return on Investment (ROI) = Annual Profit or Average Annual Profit 100% of Total Investment

2.The advantage of the rate of return on investment is that it is simple to calculate; The disadvantage is that the time value of funds is not considered, and the impact of the length of the construction period and the different investment methods and the existence of the first amount on the project cannot be correctly reflected, and the comparability of the numerator and denominator calculation caliber is poor, and the net cash flow information cannot be directly used. Only investments with an investment rate of return index greater than or equal to the rate of return on risk-free investments are financially viable.

ROI tends to be time-sensitive – returns are usually based on certain specific years. IRR (Internal Rate of Return) is a type of annual expression.

An indicator of the company's comprehensive rate of return.

IRR internal rate of return is the internal investment production rate of return of the enterprise, not a simple ratio of income to total investment, it is calculated by compound interest, I will give you an example, for example, your total investment in the first year is 10,000 yuan, it is expected to have a 5-year production income period, and 3,000 yuan is recovered every year, ask what is its rate of return, (professionally called 3,000 for annuity, 10,000 yuan for the present value), the calculation is 10,000 = 3,000 * 1 ( 1 + i )-5 i -5 here "-5" is minus 5 squared, use a calculator to find the rate of return i or use the annuity present value coefficient table to check i is about what it looks like, if the bank interest rate is higher at this time, your investment is not cost-effective, on the contrary, it is earned, of course, according to the current bank interest rate is not higher :) So your investment is profitable! Here i is the investment rate of return of 10,000 yuan (if the enterprise is 10,000 yuan, it is called the internal investment rate of return of the enterprise).

Hope to discuss with you :)

The inner rate of return, also known as the internal rate of return, refers to the actual rate of return that a project investment can actually achieve. Essentially, it is the discount rate at which the net present value of the item is equal to zero. IRR satisfies the following equation:

The general method of calculating the IRR is the case-by-test method. When the net cash flow of the project after it is put into operation is in the form of an ordinary annuity, the present value coefficient of the annuity can be directly used to calculate the internal rate of return, and the formula is: (p a,irr,n)=1 ncf

Information resource repositories.

Content expansion: 1. It refers to the information resource planning tool IRP2000 that can be applied to three levels of enterprise informatization. The information resource meta database (IRR) records and manages the development process of an enterprise's (especially large group enterprises), thus becoming the core resource of enterprise informatization.

2. In the information resource planning stage, the content of IRR includes: what information is exchanged between the existing application systems in each functional area and with external units, and what information is processed by the existing application system and the new planned application system, that is, what information resources have been developed and what information resources are to be developed; In the system construction stage, the content of IRR includes: database design, information classification and coding design, data environment reconstruction information, application system integration and development, etc.; During the operation phase of the system, the contents of the IRR are:

Changes in information structure, data definition, information classification and coding, information processing, application systems, etc.

3. IRR is by no means in the general sense"Electronic Documents"(text or hypertext file), but it is scientifically rigorously designed with a stable data model"Information Resource Planning, Information and Knowledge Base"。IRR is one"Activated in-machine documentation"to create a close-knit environment for planning analysts and produce standardized technical documentation. With the metabase, there is little need for paper documents, because online retrieval is more convenient and intuitive for multiple development groups to use, but sometimes printouts are also necessary, for example, for review, discussion, etc.

4. The establishment of enterprise IRR requires a process of accumulation and development, and the computerized recording of the first planning data is conducive to the follow-up development work; The revision of data elements and information classification and coding standards, and the optimization of the functional model and data model of the system are all based on the original IRR.

IRR is the rate of internal rate of return, also known as internal rate of return, which is the discount rate at which the present value of the cash flows generated by an investment in the future is just equal to the cost of the investment, taking into account the time value. Generally speaking, the larger the IRR when investing, the better, and the smaller the IRR when borrowing, the better.

Let's first talk about the application of IRR in investment, IRR is usually used to judge the ratio of the maximum currency depreciation that a project can bear, which is what we often call profit space and anti-risk ability.

For example, if the IRR of a project is 20%, it means that the maximum annual interest rate of the loan investment project is 20%, if the project needs to be loaned, then the maximum annual interest rate of the loan investment project is 20%, that is to say, when the annual interest rate of the loan is 20%, the investment project is just principal, but when the actual annual interest rate of the loan is 10%, then the remaining 10% It will be the profit from the investment.

It is important to note that IRR is only one of the main methods used in the analysis of profitability and does not fully represent an indicator of whether an investment will make money.

Let's talk about the application of IRR in loans, for example, the total price of buying a mobile phone in installments on an installment platform is 5499 yuan, and the monthly payment in 12 installments is yuan, and the installment payment is adopted, and it seems that the money repaid every month is really small. Intuitively, the money we should pay is yuan * 12 installments = yuan, and the interest is yuan, so is this installment interest rate the same? Of course not, because the yuan we repay in each installment contains a part of the principal.

In other words, a large part of the principal has not been used by us for the entire loan period, and the interest has always been calculated according to the total loan amount, so the actual interest rate is much higher. This is where IRR is needed to calculate our actual cost.

In Excel, A1 enters 5499 yuan, which means that the ** that needs to be paid in full is also the money borrowed from the merchant. Enter the yuan in A2 to A13, which means the yuan we will pay back to the merchant each month. Then enter the formula =IRR(A1:) in any space in **

a13)*12, we can conclude that the actual annual interest rate we bear for buying this mobile phone in installments is 24%.

It should be noted here that the annualized interest rate is not equal to the annual interest rate, and the annualized interest rate does not represent the real interest rate, which needs to be calculated according to the term of the product.

Now do you know the role of IRR, whether it is investment, financial management, loans, installments or the purchase of insurance products and wealth management products, we can use IRR to test the real yield and interest rate, without spending a penny of money.

Financial IRR is the embedded rate of return, also known as the internal rate of return, which refers to the discount rate that can make future cash inflows equal to the present value of future cash outflows, or the discount rate that makes the net present value of investment proposals zero.

The same abbreviation means different things in different disciplines and fields, and it cannot be explained without specifying the context.

Information Resource (IRR).