What's the difference between return on investment and internal rate of return? and Investment Conference

What's the difference between return on investment and internal rate of return?

Return on investment (ROI) and internal rate of return (IRR) is kind of confusing... What is the difference between the two?


Investment best answer:

Answer by chris_in_columbia
ROI is a fairly simple concept. You look at the profits you obtained during a given period of time (usually one year) and you divide that by your initial investment.

IRR is the rate of return that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first.

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Image by Salmaan Taseer
03/05/10 - Governor Salmaan Taseer addressing an investment conference at the Governor House. US delegation is led by Deputy Under Secretary for Defence Paul A. Brinkley.

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