IRR (Internal Rate of Return)

The internal rate of return is the internal yield of an investment and thus the discount rate at which the net present value of all cash inflows and outflows equals zero. It is the central return metric in the private equity environment.

Because the IRR is sensitive to timing and to short holding periods, in practice it is always reported together with the money multiple (MOIC), i.e. the factor by which the invested capital is returned. The MOIC puts the distortion caused by leverage and short-term effects into perspective.