IRR Analysis - IRR Levered and IRR Unlevered

1. IRR Analysis - IRR Levered and IRR Unlevered IRR or also known as the Internal Rate of Return is the interest rate at which the net present value of all the cash flows from an investment or project equal to zero. It is one of the most commonly used financial ratio to help evaluate the attractiveness of an investment or a project. Basically, if the IRR of said project or investment exceeds a company’s required rate of return, then that is a good deal, however, if it’s the opposite, then it is best to reject that or you will certainly incur a loss. IRR Levered– calculated based on the levered free cash flows which include the calculation of operating risks as well as the financial risks. Another term it is known for is the Equity IRR. IRR Unlevered– calculated based on the unlevered free cash flows and is subject to the operating risks of the business. It is not supposed to be affected by any changes in the business’ financing structure. Another term it is known for is the Project IRR. When it comes to IRR Analysis, it is very critical to understand what kind of IRR is calculated such as the IRR levered or IRR unlevered. This means that whenever you calculate the IRR, it is important to calculate both types to ensure that you pay attention to the risks of the investments or projects you venture and not necessarily incur a loss for being negligent. However, it is not always that conducting an IRR Analysis is effective for every venture especially for investments that generates interim cash flows. As such, you can use other financial ratios instead to calculate for the financial feasibility and profitability of the investment. Basically, the IRR is best suited for analyzing venture capital and private equity investments. To read more about the differences between the IRR Levered and IRR Unlevered, feel free to read the article: IRR Levered vs IRR Unlevered. You can also download financial model templates with calculations of IRR to use as a reference once you build your own financial model and calculate for the IRR levered and unlevered. You can get even more templates at eFinancialModels, platform offering a wide range of industry-specific financial model templates made by experts that have substantial financial modeling experience and industry know-how, so you don’t have to hire a professional to build a fully customized model for you. eFinancial Models Zurich, Switzerland 8000 info@efinancialmodels.com https://www.efinancialmodels.com/