IRR vs Return on Investment (ROI) | Vested Solar

IRR vs Return on Investment (ROI)

The major difference between ROI and IRR is the time value of money. ROI is simply the growth rate of your investment, be it even 100 years. It is not an annual rate of return. Whereas IRR takes into account the period of the investment. IRR is used to determine whether a project or investment is worth pursuing based on its expected future cash flows. 


  • Return on Investment (ROI):

    • Calculation: [(Expected Value – Original Value) / Original Value] x 100.

    • Time frame: Cumulative measure; not time-bound.

    • Annualization: Not an annual rate.

  • Internal Rate of Return (IRR):

    • Calculation: Rate at which net present value of cash flows equals zero.

    • Time Frame: Considers timing of cash flows; provides annual rate.

    • Reinvestment: Assumes reinvestment of positive cash flows.

    • Project Evaluation: Used to assess project or investment attractiveness.

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