Oana Labes, MBA, CPA
Transformative Finance Strategist, Coach & Speaker | Empowering CEOs & CFOs to Win with Decision-Ready Dashboards, Finance-Ready Strategies and Boardroom-Ready Reports | Founder & President, Financiario
- Report this post
IRR vs. ROIThey’re both financial metrics used to evaluate investment profitability and to compare the profitability of different investments.------💎 Linkedin restricts posts to 3,000 characters. Join 30,000+ subscribers of The Finance Gem 💎 and enjoy strategic finance insights delivered Saturday mornings directly to your Inbox - link in my profile or sign up here >>> The Finance Gem-----🎯 Definition:⚫ IRR (Internal Rate of Return): The discount rate making the net present value (NPV) of investment cash flows zero.🟢 ROI (Return on Investment): A financial ratio measuring the profitability of an investment as a percentage of the initial investment.🎯 How do you calculate them?⚫ IRR: NPV = ∑(Cash Flow_t / (1 + IRR)^t) = 0🟢 ROI: (Investment cash flow - cost of investment) / cost of investment🎯 What drives IRR & ROI?⚫ IRR: Time value of money, cash flow timing, cash flow amounts, discount rate, project duration, risk.🟢 ROI: Investment cash flow, cost of investment, project duration, risk.🎯 How should you use them?⚫ IRR: Evaluates investment profitability, compares different investments, determines break-even discount rate.🟢 ROI: Measures investment efficiency, compares different investments, decides where to allocate funds.🎯 How should you NOT use them?⚫ IRR: Avoid when investment cash flows are expected to be both positive and negative during project🟢 ROI: Avoid when time value of money, cash flow timing, and risk are crucial in investment decisions.🎯 How are they different?⚫ IRR is more complex, considering the time value of money.⚫ IRR accounts for cash flow timing and amounts, providing a more accurate profitability picture⚫ IRR may produce multiple solutions or none, making it difficult to interpret⚫ IRR considers risk by accounting for the required discount rate to achieve a positive NPV🟢 ROI is easier to calculate and understand🟢 ROI ignores the time value of money🟢 ROI doesn't consider riskWhat would you add?------⚫⚫⚫Get the knowledge and skills to accelerate your career and grow your business with my 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐌𝐚𝐬𝐭𝐞𝐫𝐜𝐥𝐚𝐬𝐬 (check the link in my Linkedin profile)-------➕ Follow for more finance, business, and cash flow insights.🔔 Ring the bell at the top of my profile to get notified of new posts#entrepreneur#finance#business
2,584
55 Comments
Oana Labes, MBA, CPA
Transformative Finance Strategist, Coach & Speaker | Empowering CEOs & CFOs to Win with Decision-Ready Dashboards, Finance-Ready Strategies and Boardroom-Ready Reports | Founder & President, Financiario
7mo
- Report this comment
5Reactions 6Reactions
Wassia Kamon, CPA, CMA, MBA
Finance Executive | Board Member | Keynote Speaker | 40 Under 40 CPAs | Experienced in Leading Accounting & FP&A Functions across Technology, Manufacturing & Not-for-Profit
7mo
- Report this comment
It's great that you included both when to use them and when not to use them. It's a great reminder that there is no one-size-fits-all when it comes to financial analysis metrics.
6Reactions 7Reactions
Wayne Bergman
Unlocking the full growth potential of your business | Turn weakness into opportunity | Develop leaders at all levels | Leverage & reinvest your business' profits & cash flow | Fall in love with your business, again!
7mo
- Report this comment
You continue to be very generous and kind…
5Reactions 6Reactions
José Expedito dos Santos Jr
Planejamento Financeiro / Controladoria
7mo
- Report this comment
Very useful
1Reaction 2Reactions
Eng. (Retired) David Munene Mwangi
Semi-retired Energy Consultant at Independent Energy Consultant
7mo
- Report this comment
Thank you, Oana Labes, MBA, CPA, for posting this.
1Reaction 2Reactions
Attique khan⛰️
Designing Jaw-Dropping Content for Founders and Solopreneurs | Freelance Graphic Designer | I listen to your brand, then design content that speaksitsstory
7mo
- Report this comment
Here are some additional things to consider when using IRR and ROI:>The cost of capital.The cost of capital is the minimum return that an investor expects to receive from an investment. When calculating IRR, it is important to use the cost of capital as the discount rate. This will ensure that the IRR is a realistic measure of the investment's profitability.>The risk of the investment.The risk of an investment is the likelihood that the investment will not generate the expected return. When calculating IRR, it is important to consider the risk of the investment. A higher-risk investment should have a higher IRR to compensate for the risk.
1Reaction 2Reactions
Amro Ahmed
Director Funds & Assets Management EMEA
7mo
- Report this comment
Sine the IRR is valued at rate and rate = time then : It is a financial metric used to evaluate the profitability of an investment or project. The IRR is the discount rate at which the net present value (NPV) of future cash flows from the investment becomes zero. In other words, it's the rate at which an investment breaks even in terms of generating returns. A higher IRR is generally preferable as it indicates a more lucrative investment opportunity.On other hand the ROI is on interval rate measurement or in another meaning the time split into terms to make a decision of continuing or top up or liquidation.
1Reaction
Hamid Aziz
WE HELP YOU LEVEL UP ⬆️ LEAD GENERATION | GROWTH MARKETING STRATEGY | SOCIAL MEDIA & PR MARKETING GAME🎯BUDGET MANAGEMENT | BRAND MANAGEMENT & PERSONAL BRANDING 👩🏻💻LET’S COLLABORATE WITH MORIS EXPERTS!🤝
7mo
- Report this comment
Great post on the comparison of IRR and ROI! Both metrics are essential for evaluating investment profitability and making informed decisions. While IRR considers factors like cash flow timing, amounts, and discount rate, ROI focuses on the initial investment and its returns.It's important to understand the nuances of these metrics and how they drive investment outcomes. IRR helps assess profitability, compare different investments, and determine break-even points. On the other hand, ROI measures investment efficiency, guides fund allocation, and aids in decision-making.However, it's crucial to use these metrics wisely. Avoid relying solely on IRR when cash flows are expected to be both positive and negative. Similarly, for ROI, remember to consider the long-term time value of money and the impact of risk.Overall, successful investment analysis includes a thorough understanding of IRR, ROI, and other pertinent financial metrics. These insights equip professionals like us with the knowledge and skills to accelerate career growth and business prosperity. Excited to check out your Cash Flow Masterclass! 🔥💼#investmentprofitability#businessfinance
1Reaction
To view or add a comment, sign in
More Relevant Posts
-
Eric Shaver
Managing Partner at Kensei Partners, LLC
- Report this post
IRR...the most powerful acronym in B2B Sales that most of us never learned.This is Sales super food.Enterprise Sales, if you are selling strategic SaaS assets (which you all are ;) and want to be freed from budget constraints and getting stuck in the middle of the org chart, please take a minute to digest this.IRR is the FIRST thing that we should have learned as this informs:-The true financial value of what we sell-How to engage executives as a peer -How to guide capital allocation decisions-How to start speaking Excel vs. PPT and Word...The list goes on.IRR removes the worst word in strategic B2B Sales..."Budget", from your narratives and replaces it with what really matters to the businesses that you are trying to sell to...your risk adjusted net cash impact over time.Gold, if you understand and know how to use this to source revenue...especially the revenue that is not currently finding you.Get after it!#b2bsales #sales #salesenablement
93
9 Comments
Like CommentTo view or add a comment, sign in
-
Kaibe Mokoma
Risk Manager at Econet Telecom Lesotho
- Report this post
Hello Mme Cpaty Seipati Rafube my friend do the IRR & ROI form part of regulator reporting exercise? Are these models only theoretical or real world ratio's that define business performance?
5
1 Comment
Like CommentTo view or add a comment, sign in
-
Nicolette Gardiner, CPA, CA, ACIArb
Senior Financial Consultant
- Report this post
IRR (Internal Rate of Return) vs ROI (Return on Investment)
Like CommentTo view or add a comment, sign in
-
Panicos Euripides
Project Management Services - Providing Strategic & Operational Direction to Enterprises Striving to Achieve Maximum Performance
- Report this post
IRR vs. ROI is important as they provide crucial financial metrics for evaluating the profitability and efficiency of investments.
27
1 Comment
Like CommentTo view or add a comment, sign in
-
Adel MOHAMED
Consultant Engineer & Accountant; Certified Appraiser from (FRA), Equipment Valuation Consultant "Engineers Syndicate", Member of The Association of Appraisal Experts, Feasibility Studies expert
- Report this post
Simple & clear comparison
5
Like CommentTo view or add a comment, sign in
-
Dimitrios Diamantaras
Division Supervisor, Master's Degree at Lancaster University
- Report this post
This impressively full piece of work Oana Labes, MBA, CPA about IRR vs ROI provides inter alia, definitions, examples, formulas, applications. I think that especially important is the section about where not to use them and where they produce inconlusive results. What is your opinion ?
Like CommentTo view or add a comment, sign in
-
Amro Ahmed
Director Funds & Assets Management EMEA
- Report this post
Sine the IRR is valued at rate and rate = time then : It is a financial metric used to evaluate the profitability of an investment or project. The IRR is the discount rate at which the net present value (NPV) of future cash flows from the investment becomes zero. In other words, it's the rate at which an investment breaks even in terms of generating returns. A higher IRR is generally preferable as it indicates a more lucrative investment opportunity.On other hand the ROI is on interval rate measurement or in another meaning the time split into terms to make a decision of continuing or top up or liquidation.
Like CommentTo view or add a comment, sign in
-
Gilbert Hamambi
Mtce & Reliability Engineering Enthusiast And RCM Practitioner
- Report this post
ROI Is Visualised Better In DuPont's Holistic Financial FrameworkFor reliability centered maintenance (RCM) practitioners, the benefit of ROI in the DuPont's Holistic Financial Framework can be easily seen and leveraged in decision making.Click this link here https://lnkd.in/g8XBq_vM to read more about the DuPont's Holistic Financial Framework.
14
Like CommentTo view or add a comment, sign in
-
Susie Karadsheh
Finance and HCM Technology Advisor @ Workday | Designing and Implementing Big Data Analytics Solutions
- Report this post
Anyone in strategic sales should be following Eric Shaver and Oana Labes, MBA, CPA for financial intelligence. 2023 requires a different form of selling and the 2 main ingredients are financial acumen and storytelling. It is the year of compression and it is key to speak your customers language. Companies are compressing their headcount, budgets, and tech stack. Any sizable new investments have to go to the CFO for approval, and their default response is no. Unless your solution can map to their immediate priorities and solve problems that are top of mind at the C-suite, the deal will likely get pushed. Stay ahead. Tell a story that resonates.#financemanagement #financialfuture #transformation #erp #financeoperations
7
Like CommentTo view or add a comment, sign in
-
Aurelio Canales
Mining Business Intelligence Analyst
- Report this post
🔎 Assessing the ROI of generative #Artificialintelligence (GenAI) in the mining industry requires a careful evaluation of the potential benefits and costs of implementing such a system. Here are some steps that can be taken to assess the ROI of GenAI in the mining #Management:➡ sDefine the problem: Identify the specific business problem that GenAI can help solve, such as predicting mineral grades, designing new processing methods, identifying impurities, optimizing process parameters, improving safety and increasing #Productivity.➡ Determine the value of each prediction: To compute the ROI, you need to know the value of each prediction and how many will be made in a year. The value is likely to come from the number of minutes saved by your customer service representative (CSR) in moving from a manual to an AI-assisted solution.➡ Measure performance on a continuing basis: Machine learning-based AI models may deteriorate in performance over time. That’s why it’s important to measure AI’s performance on a continuing basis, so the value from the AI model does not decay and eat into the gains already made.➡ Audit the system: Auditing will be a key governance mechanism to confirm that AI systems are designed and deployed in line with a company’s goals. But to create a risk-based audit plan specific to generative AI, Internal Audit must design and adopt new audit methodologies, new forms of supervision and new skill sets.➡ Invest in people: The promise of GenAI rests with people. Invest in them to know the limits of using the #Technology as an assistant, co-pilot, or tutor, even as they exploit and realize its potential. Empower your people to apply their knowledge and experience to critically evaluate the outputs of generative AI models.✅ By following these steps, mining companies can assess the ROI of GenAI and determine whether it is a worthwhile #Innovation investment for their business.
2
Like CommentTo view or add a comment, sign in
329,502 followers
- 691 Posts
- 1 Article
View Profile
FollowMore from this author
- Goodbye RBC, hello new beginnings! Oana Labes, MBA, CPA 2y
Explore topics
- Sales
- Marketing
- Business Administration
- HR Management
- Content Management
- Engineering
- Soft Skills
- See All