What are Internal Rate of Return (IRR) and Return on Investment (ROI)? What are the main differences?

1. Internal rate of return (IRR) refers to the actual expected rate of return of project investment. In essence, the discount rate can make the net present value of the project equal to zero. IRR satisfies the following equation:? The general method to calculate the internal rate of return is successive test. ?

When the net cash flow after the project is put into production is in the form of ordinary annuity, the internal rate of return can be directly calculated by using the present value coefficient of annuity.

2. The advantage of IRR is that it can directly reflect the actual income level of investment projects from a dynamic perspective, and it is more objective without being affected by the industry benchmark rate of return. Its disadvantage is that the calculation process is complicated, especially when a large amount of additional investment is made during the operation period, which may lead to multiple IRR, which is of no practical significance. ?

3. Investment profit rate?

(1). Investment profit rate, also known as return on investment (recorded as ROI), refers to the percentage of perennial profit or average annual profit in the total investment during the production period. Its calculation formula is:?

ROI)= annual profit or average annual profit/total investment × 100%?

(2) The advantage of investment profit rate is simple calculation; The disadvantage is that the time value of funds is not considered, which can not correctly reflect the influence of the length of construction period, different investment methods and recycling on the project. The numerator denominator calculation caliber is not comparable, so the net cash flow information cannot be directly used.