Most business people outside of finance readily admit they cannot really explain Internal Rate of Return, IRR.
Don't Ask Me To Explain!
For a few financial officers, IRR is another case of the Emperor's New Clothes.
Even so, many CFOs require them to deliver internal rate of return IRR figures. They must use IRR to support funding requests, business case results, or proposals for projects or acquisitions.
For more on IRR and MIRR, see Internal Rate of Return (IRR).
It is surprising, however, that many of the same finance people who require IRRs with incoming proposals are themselves unable to explain in practical terms:
- The meaning of IRR % values.
- How IRR compares to other financial metrics such as NPV or ROI.
Regarding IRR, almost everyone knows that a larger IRR is better than a smaller IRR. Beyond that, however, the meaning of the IRR percentage is a mystery. Read more of this post