familyfeudgma| How to use Excel to calculate cumulative internal rate of return: Learn how to use formulas to calculate cumulative internal rate of return in Excel

Master the method of calculating cumulative internal rate of return by Excel

In financial analysis, cumulative internal rate of return (Cumulative Internal Rate of Return, CIRR) is an important indicator, which can help investors to evaluate the profitability of investment projects. This article will describe in detail how to use the formula to calculate the cumulative internal rate of return in Excel to make financial analysis more efficient.

Understand the internal rate of return

Internal rate of return (Internal Rate of Return, IRR) is the discount rate that makes the net present value (Net Present Value, NPV) of the project equal to zero. The cumulative internal rate of return is the total income index obtained by calculating the internal rate of return of each period in multi-period investment. In short, CIRR reflects the return performance of an investment project over a certain period of time.

Prepare data

Before using Excel to calculate CIRR, we need to prepare the cash flow data of investment projects, including investment amount, income of each period, and so on. Suppose the investment amount of an investment project is-10000 yuan, and the expected returns in the next five years are 3000 yuan, 4000 yuan, 5000 yuan, 6000 yuan and 7000 yuan, respectively. We can express it as the following cash flow array.Familyfeudgma:

Year cash flow 0-10000 1 3000 2 4000 3 5000 4 6000 5 7000

Calculating CIRR using Excel Formula

Excel does not directly evaluate the functions of CIRR, but we can do so by writing formulas. Here are the steps for calculating CIRR:

First, calculate the internal rate of return (IRR) for each period. In Excel, you can use the IRR function. For example, for year 1 data, the IRR calculation formula is:

= IRR (A2)Familyfeudgma: B6)

Next, the cumulative internal rate of return is calculated. For multi-period investment, we need to calculate the cumulative present value (Cumulative Present Value, CPV) of each period, and then accumulate the IRR of each period. The formula for calculating the cumulative present value is:

= IRR (A2:B6) * (1 + IRR (A2:B6))

Finally, the CPV of each period is accumulated to get the cumulative internal rate of return:

= SUM (C2:G6)

According to the above method, we can conclude that the cumulative internal rate of return of the investment project is:

= SUM ((1 + IRR (A2:B6)) * IRR (A2:B6))

Through the above steps, we can easily calculate the cumulative internal rate of return in Excel, and then evaluate the profitability of investment projects.

Attention and skill

When calculating CIRR, you need to pay attention to the following points:

Ensure the accuracy of cash flow data and avoid inaccurate calculation results caused by input errors. For projects with unconventional cash flow, you may need to use the XIRR function for calculation. CIRR is only an indicator of investment evaluation, and the actual analysis needs to be combined with other financial indicators for comprehensive evaluation.

Mastering the method of calculating cumulative internal rate of return by Excel will help investors to carry out financial analysis more efficiently and provide strong support for investment decisions.

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