Internal Rate of Return (IRR) and Cash on Cash (CoC) return are two popular methods for evaluating the performance of an investment. But what’s the difference between the two? Let’s examine IRR vs COC in more detail:
IRR is a measure of an investment’s annualized rate of return. It takes into account the effects of compounding, making it a good metric for comparing the performance of investments with different holding periods.
CoC return, on the other hand, is a measure of an investment’s cash flow. It tells you how much cash an investment generates for every dollar you invest.
While IRR is a good metric for comparing different investments, CoC return is a better measure of an investment’s ability to generate cash flow. When deciding which metric to use, it’s important to consider your investment goals.
If you’re looking for an investment that will generate a lot of cash flow, then CoC return is the metric you should focus on. IRR is an important metric to consider if you hope to generate high returns on your investment.
Summary
There are a few key differences between the Internal Rate of Return (IRR) and Cash on Cash (CoC) return. IRR takes into account the time value of money, while CoC return does not. This means that IRR is a more accurate measure of true profitability. However, CoC return is simpler to calculate, which makes it a useful metric for quick decisions.
Ultimately, the decision of which metric to use depends on the situation and what information is most important. Both Internal Rate of Return (IRR) and Cash on Cash (CoC) return are important metrics that can help you make informed decisions about your investments.