Measure of return in percentage terms, Financial Accounting

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Both IRR and ROCE tenders a relative measure of return in percentage terms a feature that is seen as attractive to managers who may perhaps have difficulty in interpreting the absolute measure of value offered by net present value. A comparative measure of return ignores the size of the initial investment nevertheless and consequently should not be relied on as a sole measure of investment worth.

Academically IRR is preferred to ROCE for the reason that it takes account of the time value of money uses cash flows as well as compares the return on investment projects with the cost of capital of a company.

Nespa's utilize of numerous investment appraisal methods is however common in practice as few companies rely on a single investment appraisal method. In fact one investigation reported that 67% of companies employed three or more methods.


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