Scientific Definition O The Most Important Financial Discount Ratios 1/4

Internal Rate of Return (IRR):

To be able to exactly define the Internal Rate of Return we have

to consider the calculation mechanism, monitor and identify its figures source. Therefore we herein below would review the method of calculating the Internal Return Rate:


1- Cash Flow Statements:

Cash Flow Statements refer to the three well-known statements:
• Cash Out Flow Statement:
• Cash Inflow Statement:
• Net Cash Flow Statement:


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2- How the Researchers though of creating the IRR Indicator:
From the net cash flow statement we would realize that negative values always appear in the first year and may reach the second and third years. Then the positive values shall sometimes appear as negative values in the middle years and referring thisto the cost of replacement and renovation of the depreciated assets. Anyway the researchers thought and searched for a method to neutralize the time impact on the value of money as the time passes or so called the time value of money. This is attributed in the first place (due to accumulative experiences) to the fact that the useful life of some projects shall be decided in time-frames between five (service projects) and Twenty Five Years and could be more as in the gigantic industrial projects such as Steel Industry. So, it is not possible to predict the value
of money estimated at the date of the project construction with its value during and/or at the end of the useful life.

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