How to Calculate the Internal Rate of Return Using Excel

Internal rate of return, useful information when you're choosing investments, is one financial calculation that is simplified by Microsoft Excel. To find it, you compare the positive and negative cash flows from a proposed investment and determine an interest rate showing the investment's expected yield. Although there are complicated formulas for finding the internal rate of return, it is much easier to let Excel do the math.

Instructions

1

Do your investment homework. You will need to know the amount you will be investing, whether it's a one-time investment or a series of investments. These are called the values.

2

Estimate the rate of return of the investment. If there is no guaranteed return on your investment, you must estimate the amount of interest you will be earning. This is called the guess.

3

Open Excel and create a spreadsheet. Enter the values you are investing in one column. You will enter the guess for this investment in the cell immediately below the values you have entered.

4

Determine your internal rate of return by entering the following formula in the next cell down: [=IRR] (select the cells containing your values; select the cell containing your guess). It will look something like this [=IRR(D4:D9,D10)].

5

Press the enter key to let Excel do its work.