# IRR

Internal rate of return — the time-weighted annualized return on an investment.

**Acronym:** IRR

IRR (internal rate of return) is the time-weighted, annualized rate of return on an investment — the discount rate at which the investment's cash flows net to zero. It expresses return as a yearly percentage and is therefore sensitive to the timing of cash flows, not just their total.

IRR is the complement to MOIC. Because it weights time, IRR rewards returning capital sooner and can make a modest multiple realized quickly look stronger than a larger multiple realized slowly. The two measures answer different questions — how fast versus how much — and conflating them, or optimizing one at the expense of the other, distorts how a return is understood.

### Commonly confused

MOIC. IRR is the time-weighted annualized return; MOIC is the cash-on-cash multiple ignoring time. The two can diverge sharply depending on how long capital was held.

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