Internal Rate Of Return

What Does Internal Rate Of Return Mean?

The internal rate of return (IRR) is a calculation used to determine the financial growth of an investment or financial venture, expressed as a percentage. A higher percentage indicates greater financial growth of the investment.

It is also referred to as the dollar-weighted rate of return.

Insuranceopedia Explains Internal Rate Of Return

The IRR is widely used in finance, from determining the interest rates on loans to assessing the income generated from real estate deals. Buyers of cash-value insurance products often run an IRR calculation to see what their policy is really earning after fees and the cost of insurance. It comes up most often when comparing annuities or indexed universal life insurance, since long-term growth is the whole point of those products. It typically reflects both the return on the initial investment and any money earned beyond it, essentially showing profitability. Because of its importance in measuring potential returns, investors often analyze the IRR of a business before deciding to invest in it.