Oana Labes, MBA, CPA on LinkedIn: #entrepreneur #finance #business | 55 comments (2024)

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

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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

  • Oana Labes, MBA, CPA on LinkedIn: #entrepreneur #finance #business | 55 comments (2)

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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

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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

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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.

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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!

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You continue to be very generous and kind…

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José Expedito dos Santos Jr

Planejamento Financeiro / Controladoria

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Very useful

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Attique khan⛰️

Designing Jaw-Dropping Content for Founders and Solopreneurs | Freelance Graphic Designer | I listen to your brand, then design content that speaksitsstory

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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.

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Amro Ahmed

Director Funds & Assets Management EMEA

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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.

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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!🤝

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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

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    IRR (Internal Rate of Return) vs ROI (Return on Investment)

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    Simple & clear comparison

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    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 ?

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  • Amro Ahmed

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    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.

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Oana Labes, MBA, CPA on LinkedIn: #entrepreneur #finance #business | 55 comments (37)

Oana Labes, MBA, CPA on LinkedIn: #entrepreneur #finance #business | 55 comments (38)

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