Internal Rate of Return (IRR)
Definition
The discount rate at which a project's net present value is zero — effectively its expected percentage return. A project is generally attractive when its IRR exceeds the required rate of return.
Related Terms in Financial Analysis
Payback Period
The time it takes for a project's cash inflows to recover the initial investment. It is simple and widely used but ignores cash flows after payback and the time value of money.
Cost-Volume-Profit (CVP) Analysis
A technique examining how changes in sales volume, costs and prices affect profit. It underpins break-even analysis and decisions on pricing, product mix and target profit.
Cash Burn Rate
The rate at which a business, often a startup, spends its cash reserves before reaching profitability. Gross burn is total cash spent; net burn is spending less any cash coming in.
Cash Runway
How long a business can keep operating at its current net burn rate before it runs out of cash. It tells founders how much time they have to reach profitability or raise more funding.
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