Excel allows a user to get an internal rate of return of an investment when the returns occur at irregular intervals using the XIRR function. If we want to calculate an internal rate where returns occur at regular intervals, we need to use the IRR function. This step by step tutorial will assist all levels of Excel users to learn how to use the XIRR function in Excel.
Figure 1. The result of the XIRR function
Syntax of the XIRR Formula
The generic formula for the XIRR function is:
=XIRR (values, dates, [guess])
The parameter of the XIRR function is:
- values – a range of cells containing values, including initial investment and incomes. The investment must have negative sign, as it is a cost
- dates – a range of dates corresponding to values. All dates must be in chronological order
- [guess] – an estimated value for the expected XIRR. This parameter is non-mandatory. If it’s omitted, the function will take a default value of 0.1 (=10%).
Setting up Our Data for the XIRR Function
Let’s look at the structure of the data we will use. In column B (“Amount”), we have values including initial investment and periodical incomes. In column C (“Date”) we have a corresponding date for every amount. In the cell E3, we want to get the XIRR.
Figure 2. Data that we will use in the XIRR example
Get an XIRR of Values Using the XIRR Function
In our example, we want to get the XIRR of the values in the range B3:B10. The result will be in the cell E3.
The formula looks like:
The parameter values is the range B3:B10 and the parameter dates is C3:C10.
To apply the XIRR function, we need to follow these steps:
- Select cell E3 and click on it
- Insert the formula:
- Press enter.
Figure 3. Using the XIRR function to get the internal rate of the investment
Finally, the result in the cell E3 is 22%, which is the internal rate of the investment.
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