Most business professionals outside of finance readily admit they do not really understand the meaning or use of internal rate of return (IRR).
Don't Ask Me To Explain!
For a few financial officers, IRR is another case of the Emperor's New Clothes.
Nevertheless, many are required, by their CFOs or other financial specialists, to deliver internal rate of return IRR figures to support funding requests, business case results, or proposals for projects, acquisitions, or other actions.
For a complete introduction to IRR and MIRR, see the encyclopedia entry Internal Rate of Return (IRR).
It is surprising, however, that many of the same financial specialists who require IRRs with incoming proposals are themselves at a loss when they are called on to explain the meaning of IRR figures, or to explain in practical terms how IRR compares to other financial metrics such as net present value (NPV) or return on investment (ROI). Regarding IRR, almost everyone knows that a larger IRR is preferred over a smaller IRR, but beyond that, for many, the meaning of the IRR percentage is a mystery. Read more of this post