financial-metrics
IRR is the discount rate that sets the net present value of a cash-flow stream to zero. It is the money-weighted return investors use for funds, LBOs and projects with timed inflows and outflows.
NPV at discount rate r is the present value of all flows. IRR is the r that makes NPV = 0:
0 = Σ CF_t / (1 + IRR)^t
Solve for IRR (spreadsheet IRR or XIRR for dated cash flows). It is money-weighted: a euro that sits in the deal longer counts more. CAGR only looks at two values. ROI often ignores time entirely.
Invest Europe and GIPS discuss how funds should present since-inception IRRs, TVPI, DPI — IRR alone is not a performance standard.
Illustration only. Hypothetical buyout equity ticket.
| Date | Cash flow |
|---|---|
| Close | −€20.0m (equity in) |
| Year 3 dividend | +€3.0m |
| Year 5 exit | +€42.0m |
XIRR is about 18%. If the same €42m exit happened in year 8 with no dividend, IRR would fall even if the multiple of money (MOIC 2.1x) looked similar. That is why PE marketing always pairs IRR with MOIC and hold period.
A large financial-buyer exit in insurance brokerage or similar platforms is underwritten on this math: entry leverage, hold-period EBITDA growth, and exit multiple — IRR is the compression of those three.
Compare IRR with WACC for projects (hurdle). For fund equity, compare with the return investors required for that risk. A 40% IRR on a six-month flip is not the same economic object as 18% over five years.
Multiple IRRs exist if signs flip more than once. Mutually exclusive projects with different scale need NPV, not IRR.
Private equity and venture fund reporting; LBO models; capex ranking (with caution).
Reinvestment assumption (intermediate cash flows are assumed reinvested at the IRR). Sensitive to the last period’s exit value — a valuation, not a fact. GP-friendly timing of capital calls can manufacture IRR. Not a substitute for ROIC of the portfolio company.
Dazur uses IRR in investor-side matching as a scenario output from a structured model (entry, leverage, exit), never as a property of the company like gross margin. The company does not “have an IRR”; a deal does.