The internal rate of return (IRR) is a financial metric used to evaluate the profitability of an investment. It represents the discount rate at which the net present value (NPV) of all cash flows from the investment equals zero. In simpler terms, it helps investors understand the expected annual return on an investment over time. IRR is commonly used in capital budgeting to compare different investment opportunities. A higher IRR indicates a more attractive investment, while a lower IRR suggests less potential for profit. Investors often use IRR alongside other metrics, such as net present value and return on investment, to make informed decisions.