**The IRR function** is a financial function in Excel. It returns the **Internal Rate of Return (IRR)** for a given cash flow (the initial investment and a series of net income values) that occur at regular intervals. In this article, we will show you how to use the **IRR** function in Excel.

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**Introduction to The IRR Function**

**Purpose**

To calculate the internal rate of return.

**Syntax**

**=IRR(values, [guess])**

**Arguments Description**

Argument | Required/ Optional | Description |
---|---|---|

values |
Required | Arrays or range of cell references that contain values. |

guess |
Optional | Estimation of expected IRR. The default value is 0.1 or 10%. |

**Return Value**

Calculated IRR as percentages.

**4 Examples on Using IRR Function in Excel**

In this section, we will show you how to utilize the **IRR** function in Excel to calculate monthly cash flows in different ways.

**1. Calculate Monthly Profit Flow by IRR Function**

This is a solid example of the **IRR** function. Consider the following example. Here we will calculate the **IRR** of a **Profit Flow** that occurred in consecutive months.

**Steps:**

To calculate that, all we have to do is,

**Pass the range of cells**inside the**IRR**function as a parameter and press**Enter**.

In our case, the formula is,

`=IRR(C5:C11)`

Here,

**C5:C11** = **Array** or **range of cell references** in **Profit Flow** column that contain values to calculate the **IRR** for.

You will get the** IRR** value of your cash flow for sequential months.

**2. Measure Monthly Profit Flow with Guess by IRR Function**

Previously, we calculated the **IRR** only with the required argument, **array** value. But this time we will learn how to calculate monthly profit flow with **Guess**, which is an estimated value.

**Steps:**

To calculate profit flow with **Guess**,

- Write the generic
**IRR**formula with the**cell ranges**as the first parameter, and - Write the
**estimated value**based on what you want your internal rate of the return value. We wanted an estimation of 20% of the**IRR**.

In our case, the formula is,

`=IRR(C5:C11, 20%)`

Here,

**C5:C11** = **Array** or **range of cell references** in **Profit Flow** column that contain values to calculate the **IRR** for.

**20%** = **Guess** value for the expected** IRR**.

It will give you the **IRR** result with the estimated value that you provided.

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**3. Compare Between Monthly Profit Flows with the IRR Function**

You can also compare cash flows between multiple projects. Look at the following example where we wanted to compare profit flows between multiple months in consecutive years.

What we did here is, we calculated **IRR** for specific months in different years. For instance, to calculate the **IRR** for **January**,

- We
**pass all the cell ranges**of column**January**inside the**IRR**

So the formula for **January** is,

`=IRR(C5:C11)`

Here,

**C5:C11** = **Array** or **range of cell references** in **January** column that contain values to calculate the **IRR** for.

- For
**February**, the formula will be,

`=IRR(D5:D11)`

As cell range **D5:D11** holds the values for **February**

- Similarly, for
**March**, the formula will be,

`=IRR(E5:E11)`

As cell range **E5:E11 **holds the values for **March**; and so on.

**4. Calculate Compound Annual Growth Rate (CAGR) with IRR Function**

Though Excel’s **IRR** function is designed to calculate the internal rate of return, you can also calculate the **compound annual growth rate (CAGR)** with it. To calculate that, all you have to do is, organize the data in a way that,

- Keep the first value (initial investment) as a negative number and the last value as a positive number.
- Replace the in-between cash flow values with zeros (to understand more, see the given picture below).

After that, simply write the regular **IRR** formula with the **cell ranges** as the parameter and press **Enter**.

In our case, the formula is,

`=IRR(C5:C11)`

Here,

**C5:C11** = **Array** or **range of cell references** in **Revenue** column that contain values to calculate the **CAGR** for.

It will produce the calculated internal rate of return for the **CAGR **of your data.

To check whether the value is truly correct or not, we run a mathematical **CAGR** formula,

**=(end_value/-start_value)^(1/(number of periods-1)) -1**

In our case, which shifted as,

`=(C10/-C5)^(1/(6-1)) -1`

Here,

**C10**= end value**C5**= start value**6**= number of periods

And we still got a similar result, hence the **CAGR** value produced by the Excel **IRR** function is correct.

**Things to Remember**

- The first array argument, values, must contain
**at least one positive value**and**one**negative value. - If the calculation for
**IRR**fails to assemble after**20 iterations**, then the**#NUM!**value will occur. **IRR**is closely related to the**Net Present Value (NPV)**The rate of return calculated by the**IRR**is the discount rate while the**NPV**is equal to zero ($0).

**Conclusion**

This article explained in detail how to use the **IRR **function in Excel with examples. I hope this article has been very beneficial to you. Feel free to ask if you have any questions regarding the topic.