Difference Between IRR vs XIRR

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IRR vs XIRR Infographics

IRR vs XIRR Key Differences

  • Cash Flows: This is one of the primary differences between these two functions. IRRIRRInternal rate of return (IRR) is the discount rate that sets the net present value of all future cash flow from a project to zero. It compares and selects the best project, wherein a project with an IRR over and above the minimum acceptable return (hurdle rate) is selected.read more does not understand when the actual cash flow happens, so it assumes it as a year, but with the XIRR function, it considers dates when cash flow happens.Accurate Result: Unless there is a standard cash flow XIRRXIRRThe XIRR function, also known as the Extended Internal Rate of Return function in Excel, is used to calculate returns based on multiple investments made for a series of non-periodic cash flows.read more is always the best option to evaluate an investment, so if your cash flows are happening at any specific date, you can rely on IRR functionIRR FunctionThe internal rate of return, or IRR, calculates the profit generated by a financial investment. IRR is a built-in function in Excel that calculates the IRR using a range of values as an input and an estimate value as the second input.read more or else you need to track dates and use XIRR function.

IRR vs XIRR Head-to-Head Comparison

Example

Let us show you an example to demonstrate the differences between these two functions. But, first, we will calculate the IRR function.

Mr. A has invested some money in one of the projects, and below are the details we have for his investment.

Using these investment details, we will calculate the ROI.

First, we will calculate the IRR percentage.

The first argument of the IRR function is to select the values, i.e., what are the cash inflows and outflows, so choose the range of cells from C2 to C6.

[Guess] is an inflation rateInflation RateThe rate of inflation formula helps understand how much the price of goods and services in an economy has increased in a year. It is calculated by dividing the difference between two Consumer Price Indexes(CPI) by previous CPI and multiplying it by 100.read more, so automatically it takes 10%, leave it.

So, the ROI for Mr. X is 17.13%.

Now, similarly, open the XIRR function.

For values, the argument chooses cells from C2 to C6.

The XIRR function is different from the IRR function, and the second argument dates, i.e., the dates for cash flowsCash FlowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more, so choose the date range of cells from B2 to B6.

As usual, leave the last argument.

With the XIRR function, we have got more ROI percentage because, with this function, we have taken into consideration specific date scheduled cash flows.

Conclusion

If you want to know the internal rate of return, you must have dates for each of your cash flows because this is where our period will be considered, and an accurate ROI percentage can arrive.

So, XIRR is a better option than the IRR function.

This article is a guide to XIRR vs. IRR. We discuss the top difference between IRR and XIRR functions in Excel and infographics and a comparison table. You may also have a look at the following articles: –

  • Incremental IRRMIRR in ExcelNPV vs IRRNPV Profile