What is Rate of Return?

The Rate of Return (ROR) also known as a Return on Investment (ROI) is the ratio of money gained or lost on an investment as a fraction of the amount of money invested. Projects with higher Net Present Values (NPVs) help to generate higher rates of return. NPV is calculated by discounting all available cash flows back to the present date. While selecting projects many companies also refer to an Internal Rate of Return (IRR). The IRR refers to how much the investment will have to recover relative to the investment for the project to be approved