Extended Internal Rate of Return for irregular cash flows. Used by investors and analysts to measure annualized return on investments with non-periodic contributions.
The Extended Internal Rate of Return (XIRR) is a financial metric used to calculate the annualized return of an investment where cash flows occur at irregular intervals. Unlike regular IRR, XIRR accounts for exact dates, making it more accurate for real-world scenarios (investments, private equity, project finance).
Mathematical definition: Find the rate r such that:
∑ [CFᵢ / (1+r)^(dᵢ/365)] = 0
where dᵢ = days from the first cash flow date, and CFᵢ are cash flows (negative = outbound, positive = inbound).
| IRR | Assumes periodic (e.g., annual) cash flows; dates ignored. |
|---|---|
| XIRR | Exact dates → accurate for irregular contributions/withdrawals. |