Money-on-money return, also known as internal rate of return (IRR), is a measure of an investment’s efficacy that takes into account the time value of money. Specifically, it is calculated by assessing the net present value of an investment’s periodic cash inflows, while taking into consideration the cost of capital, or the amount of money needed to acquire the capital in the first place. It is often used in capital budgeting, or measuring the anticipated return of projects that require a significant investment. Money-on-money return is expressed as a percentage, and represents the ratio of an investment’s net cash flow, including the cost of capital, to the initial cost of the investment. A positive return indicates that an investment is profitable, while a negative return means the opposite.

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