Thread by @SuryansMisra

Want to know how to calculate the return on your investments?

Look no further than the IRR & XIRR functions in 'MS Excel' to make smarter investment decisions!

Let's dive into the differences and find out which one is right for you. 📈💰 #excel #finance #investing 🧵

So, what exactly is the IRR function?

In simple terms, it's a formula that calculates the rate of return that makes the net present value (NPV) of a series of cash flows equal to zero. 🤑

To use the IRR function, you'll need to input a series of cash flows for a given investment.

These cash flows can be positive or negative and can occur at different points in time. 💰

Once you've inputted your cash flows, Excel will use the IRR function to calculate the rate of return for the investment.

This can help you determine whether or not the investment is worth pursuing. 💼

Formula: =IRR(values, [guess])

where values are the cash flows, and guess is an optional guess for the IRR.

While the IRR function is a great tool, it does have some limitations.

For example, it assumes that all cash flows are reinvested at the calculated rate of return, which may not always be realistic. 🔍

This is where the XIRR function comes in. Unlike IRR, XIRR can handle irregular cash flows, where cash flows occur on non-uniform dates.

This makes it a more flexible tool for calculating the rate of return for investments. 📊

In addition to handling irregular cash flows,

XIRR also allows for more precise calculations by taking into account the specific dates on which cash flows occur.

This can be especially helpful for investments with complex cash flow structures. 📉

Formula: =XIRR(values, dates, [guess])

where values are the cash flows, dates are the corresponding dates of the cash flows, and guess is an optional guess for the IRR.

So, which function should you use: IRR or XIRR?

It depends on the nature of your investment and the cash flow structure you're working with.

In general, if your cash flows occur at regular intervals, IRR may be sufficient. But for irregular cash flows, XIRR is the way to go.

That’s all for now, here’s another thread on list of MS Excel’s top 10 functions for finance:

https://twitter.com/SuryansMisra/status/1648981476602679297?s=20

I hope you found this thread useful and learned something.

If you did, please show some love by:
- Retweeting the first tweet of this thread so more people can benefit from it, and
- Following me @SuryansMisra

Thank you for reading and stay tuned for more! 🙌