Calculating Investment Return

[pagervt]

A non-finance person here trying to improve my game.   I would like to gain the knowledge and skill set to calculate internal rate of return or time weighted rate of return on an investment for a 12 month or longer period.   Esp to tie back to vendor created reports, identify issues w reports, etc.   

Templates, links, articles all greatly appreciated!

[#2 · Accepted solution]

@pagervt 

Calculating investment return metrics like the Internal Rate of Return (IRR) and Time-Weighted Rate of Return (TWR) can be complex, but I'll provide you with an overview and some resources to help you get started.

1. Internal Rate of Return (IRR):

• The IRR is a metric that helps you assess the potential profitability of an investment. It represents the rate at which an investment breaks even. In Excel, you can use the IRR function to calculate it.
• Here's a simple guide on how to calculate IRR in Excel: How to Calculate IRR in Excel.
• Excel's official documentation on the IRR function: IRR function.

1. Time-Weighted Rate of Return (TWR):

• TWR is a measure of the rate of return of an investment portfolio over time, adjusted for external cash flows. It's commonly used for assessing the performance of investment funds.
• TWR calculations are more complex than IRR, and they usually require investment performance software. Excel might not be the best tool for this, but it can be done with manual calculations.
• Investopedia provides a detailed guide on TWR calculations: Time-Weighted Rate of Return (TWR).

1. Templates and Tools:

• You can find various investment analysis templates and tools online that can simplify the process of calculating investment returns. Microsoft Excel itself has templates for financial analysis, including ROI and IRR calculations. See the insert file.
• Many online finance websites offer free Excel templates for calculating investment returns. Sites like Investopedia, Vertex42, and Smartsheet are good places to start.

1. Courses and Learning Resources:

• To gain a deeper understanding of financial analysis and investment returns, you might consider enrolling in online courses or reading textbooks on finance and investment analysis.
• Websites like Coursera, edX, and Khan Academy offer free and paid courses on finance and investing.
• Books like "Investments" by Bodie, Kane, and Marcus or "Corporate Finance For Dummies" by Michael Taillard can provide a solid foundation in finance concepts.

1. Vendor Reports:

• When working with vendor-created reports, it's important to understand the methodology they use to calculate returns. If there are discrepancies, you should reach out to the vendor for clarification.
• Ensure that you're comparing apples to apples by understanding the time period and methodology used in your calculations versus what the vendor is providing.

Remember that financial analysis can be complex, if you're dealing with substantial investments or complex portfolios. The text was created with the help of AI.

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Hope this will help you.

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[#3]

Thanks very much @NikolinoDE !