Mergers & Acquisitions

Resources: Glossary

Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.

Internal Rate of Return (IRR)

Definition

The interest rate, which is applied to a stream of cash flows, that causes the sum of the outflows and inflows to equal zero.

See Also

Hurdle rate, private equity group, return on investment, venture capital.

Tips

IRR is commonly used by private equity firms when calculating returns. IRR differs from the rate of return because IRR is the annualized return on investment. The length of time for holding an asset has a tremendous impact on the IRR. For an asset purchased at $1,000, then sold six months later at $2,000, the rate of return would be 100%. However, the IRR would be closer to 200%.