What is internal rate of return (IRR) and return on investment (ROI)? What are the main differences?

1. Internal rate of return (IRR) refers to the rate of return that can actually be achieved by project investment. In essence, it is the discount rate that causes the project's net present value to equal zero. The IRR satisfies the following equation:? The general method of calculating the internal rate of return is the test-by-test method. ?

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

2. The advantage of internal rate of return is that it can directly reflect the actual income level of investment projects from a dynamic perspective, and is not affected by the level of industry benchmark rate of return, so it is relatively objective. The disadvantage is that the calculation process is complicated, especially when there is a large amount of additional investment during the operating period, it may lead to multiple IRRs, which lacks practical significance. ?

3. Investment profit rate?

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

Profit rate on investment (ROI) = annual profit or average annual profit/total investment × 100%?

(2). The advantages of investment rate of return are The calculation is simple; the disadvantage is that the time value of money factor is not taken into account, and it cannot correctly reflect the impact of the length of the construction period, different investment methods, and the availability of recovery amount on the project. The comparability of the calculation caliber of the numerator and denominator is poor, and the net calculation cannot be directly used. Cash flow information.