Internal Rate of Return (IRR)
Private Equity glossary · Paper LBOs & Returns Math
Definition
NO CHANGE — entry is already correct and overrides the source glossary's erroneous 'time-weighted' label.
Internal Rate of Return (IRR) in plain English
IRR is a single percentage that answers "how fast did this investment grow my money per year, accounting for exactly WHEN cash went out and came back?" A dollar returned next year is worth more than one returned in ten years, and IRR bakes that timing in — technically it's the annual growth rate that makes all the money you put in and got back balance out to zero. Think of it as the investment's "speed of money-making": a deal that doubles your money in 2 years has a much higher IRR than one that doubles it in 8. It's the headline number private equity investors use to compare deals.
Also called: IRR
Learn these first
Practice Internal Rate of Return (IRR)
Which feature does IRR capture that MOIC by itself does not?
Related Private Equity terms
Private Equity practice questions · Private Equity flashcards · Private Equity study guide