If you have an investment plan it is always recommended that you first seek the advice of a finance specialist and calculate the internal rate of return (IRR). If after your investment you decide to reinvest the cash that you have obtained you should also calculate the modified internal rate of return using the MIRR function available on your computer.

The modified internal rate of return is a complex financial measure meant to help you find out how effective an investment may be. The MIRR function does more than calculate the internal rate of return for your investment; it will calculate what your profit might be after you have re-invested your profit. In this calculation the program will consider the investment as well as the re-investment of cash for a series of cash flows that occur on a regular basis.

To calculate the modified internal rate of investment you need to follow a few simple steps. First you must open the Microsoft Excel program available on your computer and select the "Insert" option available on the horizontal bar at the top of your screen. Next you must select the "Function" option and then the MIRR function from the list of all available functions.

Next you need to enter information about your investment like the value (meaning the sum involved in your investment including the cost), the finance rate (which is the interest rate that you must pay on the money that you use in the cash flow) and the re-investment rate (meaning the interest rate that you receive after you have re-invested your cash). Calculating the modified internal rate of return offers you a more accurate image of how profitable an investment might be because it also considers the reinvestment of profit resulting from the initial investment.

Just as it is the case with calculating the internal rate of return, when calculating the modified internal rate of return it is not important whether the sums that you enter are even but it is important that they occur regularly (like once every year or once every month) because this calculation deals with periodic cash flow.

However, a major difference between the internal rate of return and the modified internal rate of return is that the latter does not overstate the value of an investment because it requires more accurate information about the finances involved. Any negative cash flow is discounted and it is listed in the first outlay of the investment. The formula used to calculate the modified internal rate of return considers the positive and negative values, the finance rate, the net present value but also the re-investment rate and with such detailed information the result is bound to be more accurate.

Aside from using the MIRR function available on your computer you can also search for modified internal rate of return calculators on the internet, but before actually investing it is recommended that you request the advice of a finance specialist. However, knowing the Modified Internal Rate of Return will ensure that you keep your investment safe and make it profitable.