Let’s start with basics and let’s get an idea about what IRR is? The full form of this function is the Internal Rate of Return and it’s a financial performance metric that is used to calculate an investment’s predicted annual growth i.e., it’s something that is used to determine the prospective profitability of investments.
How to Use IRR Function In Google Sheet
When you have data of continuous cash flow, you can use this function for estimating a profitability. The syntax for this function is –
=IRR(cashflow_amounts, [rate_guess]) here,
the cashflow_amounts argument is an array or range that contains the investments revenue or payments. And this must include at least one positive and one negative amount rate.
rate_guess is an optional argument that is 1 by default. It’s a prediction of what the internal rate of return will be.
To understand with ease, let’s go ahead with an example. Attached below is our data on continuous cash flow.
Here, the actual cash flow mentioned is of 5 years and the initial year is just showcasing the cashflow of startup year. To calculate IRR for this data –
- To begin, choose the cell where you want to calculate the IRR.
- Then, on your keyboard, press the equals sign (=) and write IRR. When you’re finished, press tab.
- Enter the cell range containing your cashflow amounts.
- Add a closing parenthesis “)” to the end of your function.
- On your keyboard, press Enter.
The formula/function we’ll need to enter for the above example will be =IRR(B2:B7) and the result will be 42% as shown below.
This is a very helpful function provided by Google Sheets specially for persons involved in managing financial block of a corporation. It’ll make them meeting ready within a minute of easy calculation.