{"id":6218,"date":"2021-11-19T09:57:01","date_gmt":"2021-11-19T08:57:01","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=6218"},"modified":"2025-09-04T15:24:39","modified_gmt":"2025-09-04T15:24:39","slug":"irr-xirr-mirr-functions-excel","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/irr-xirr-mirr-functions-excel\/","title":{"rendered":"The IRR, XIRR and MIRR functions in Excel"},"content":{"rendered":"

\"Photo<\/a><\/p>\n

In this article, L\u00e9opoldine FOUQUES<\/a> (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021) presents the IRR function in Excel to compute the internal rate of return of a series of cash flows.<\/p>\n

About Excel<\/h2>\n

Excel is by far the most used financial modeling tool across the world to build models and perform analysis. Knowing which Excel function to use can help employees in the financial sector (financial analysts, fund managers, risk managers, traders, etc.) to work faster and build a more powerful model.<\/p>\n

The internal rate of return (IRR)<\/h2>\n

Definition<\/h3>\n

The computation of the internal rate of return (IRR) is based on the net present value (NPV) of an investment. In financial modelling, an investment is represented by a series of cash flows: CF0<\/sub>, CF1<\/sub>, CF2<\/sub>, \u2026, CFT<\/sub>. For a classic investment, the first cash flow, CF0<\/sub>, is negative (outflow) and the future cash flows, CF1<\/sub>, CF2<\/sub>, \u2026, CFT<\/sub> are positive (inflows).<\/p>\n

The net present value (NPV) of an investment is computed according to the following formula:<\/p>\n

\"NPV<\/center>where r is the discount rate that takes into account the risk of the project.<\/p>\n

The IRR corresponds to the value of the discount rate for which the NPV is equal to 0:<\/p>\n

\"IRR\"<\/center>The IRR is the solution of a non-linear equation:<\/p>\n

\"IRR\"<\/center><\/p>\n

Use in finance<\/h3>\n

One of the most important functions is the Internal Rate of Return (IRR) function, as it\u2019s an easy function to compare an investment’s return, based on a series of cash flows.<\/p>\n

The function is very useful in financial modeling. Indeed, it\u2019s frequently used to compare scenarios before deciding about a project. An example is when a company is presented with two opportunities: one is investing in a new factory and the second is expanding its existing factory.<\/p>\n

By using IRR, we can estimate the IRR for each scenario and verify which one is higher than the average cost of capital of the business (the Weighted Average Cost of Capital or WACC) is a calculation of a firm\u2019s cost of capital in which each category is proportionally weighted).<\/p>\n

The Excel functions to compute the IRR<\/h2>\n

Building a math-based calculation is time-consuming and complicated, so Excel offers three functions for the calculation of the internal rate of return: IRR, MIRR, and XIRR.<\/p>\n

The IRR function<\/h3>\n

The IRR function uses one required argument and one optional:<\/p>\n