Internal Rate of Return
The annualized return that accounts for the timing of all cash flows. IRR answers the question: what annual percentage return does this investment generate, considering when money goes in and comes out?
Why it matters
IRR lets you compare projects of different sizes and durations on a like-for-like basis. It rewards faster returns.
In Profivo
Profivo runs Newton-Raphson on monthly cash flows, then converts to an annual figure via geometric annualization: (1 + r_monthly)¹² − 1. This is materially more accurate than a naive r × 12, especially when comparing projects of different durations.