How to use irr in excel

This article explains how to use irr in excel. But to fully understand its use, you must first know what is irr so you can derive and comprehend results better.  The IRR represents internal rate of retrun. It is calculated on a series of cash flow on monthly, yearly or any periordic intervals. In business, there are payments (negative values) and income (positive values) that spans throughout the investment course so they both need to be included to calculate irr. If the irr is less than the cost of capital, there is a loss. If the value of irr is greater, there is a profit in the investment.

This article will illustrate how to use irr in excel based on an example of cash in-flow and out-flow. So let’s get started.

Use irr in excel by shortcut method

1. Open the file you wish to include irr. This example shows cash flow span upto 6 years and the cost of capital is 5%.

2. Click on the cell D13 to apply irr formula.

3. type “equals” sign, and type “irr” and press tab. The irr function is now active.

4. Bring your mouse to the cell D6.

5. Click and hold left mouse button and drop till D12. This will select all cash flow values.

6. Now hit enter, the irr value is calculate.

Note: the irr is 8% which is greater than cost of capital. This means the investment is profitable.

Use irr in excel by selecting the function

1. Open the file you wish to include irr. This example shows cash flow span upto 6 years and the cost of capital is 5%.

2. Click on the cell D13 to apply irr formula.

3. Click on formula tab, multiple options under the tab opens.

4. Now click on Financial tab, a drop down list appears.

5. Find and select irr.

6. A dialogue box appears.

7. Click the arrow in the Values field.

8. Bring your mouse to the cell D6.

9. Click and hold left mouse button and drop till D12. This will select all cash flow values.

10. Hit Enter. The range is specifed in the Value field box.

Note: the guess option is not used in most cases so leave it as it is.

11. Now click on Ok. Again the irr is calculated as 8% which is greater than cost of capital.

Use irr in excel by selecting from the function method

1. Open the file you wish to include irr. This example shows cash flow span upto 6 years and the cost of capital is 5%.

2. Click on the cell D13 to apply irr formula.

3. Click on the fx option.

4. A drop down box appears.

5. In the Search For A Function, type irr. The function is shown in the dialogue box below.

6. Double click the irr function and the same dialogue box appears.

7. Repeat the same process of assigning range and the irr is again calculated as 8%.

So this is how to use irr in excel. Need to edit Word/Excel/PPT file free of charge? Download WPS Office edit files like without any cost. Download now! to get enjoyable working experience.