Modified Internal Rate of Return (MIRR / TRIM)

The Modified Internal Rate of Return (MIRR, or TRIM in French) is an improved version of the conventional IRR that corrects two structural weaknesses: the implicit reinvestment rate assumption (conventional IRR assumes intermediate cash flows are reinvested at the IRR itself, which is often unrealistic) and the multiple IRR problem for non-conventional cash flows (flows with more than one sign change). The MIRR produces a single, unique return metric based on a user-specified reinvestment rate and financing rate.

The MIRR is calculated in two steps: (1) positive cash flows are compounded forward to the end of the projection period at the reinvestment rate r_r (typically the WACC or cost of equity), producing a terminal value; (2) negative cash flows are discounted back to year zero at the financing rate r_f. The MIRR is the annualised rate that equates the present value of outflows with the terminal value of inflows over the projection period. By separating the reinvestment and financing rates, the MIRR produces a more realistic and conservative return estimate than the conventional IRR.

In practice, the MIRR is more conservative than the IRR for high-return projects (because reinvestment at the WACC rather than at the IRR reduces the effective rate) and more realistic for infrastructure, long-duration LBO, and concession projects where intermediate cash flows cannot be reinvested at the project's own return. At Hectelion, we compute MIRR alongside IRR in our LBO and investment performance models when requested by clients seeking a more conservative performance benchmark.

At Hectelion, we calculate MIRR in our LBO valuation models and investment performance analyses for clients requiring a conservative IRR alternative.