How do companies like Microsoft use IRR calculation to make financial decisions?

Companies like Microsoft use Internal Rate of Return (IRR) calculation to make financial decisions such as stock buybacks. IRR is a financial metric that is widely used in capital budgeting and corporate finance. It's an estimate of the profitability of potential investments. IRR calculations are used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project. Hence, using IRR, companies like Microsoft can decide whether a large capital deployment like a stock buyback would yield a satisfactory return.

Question was asked on:

According to Goldman Sachs, over $504 billion dollars of stock buybacks were issued in 2021 — the most in over 22 years. Microsoft made headlines when it announced its own $60 billion dollar stock buyback program in September. So how do companies like Microsoft make the decision to deploy so much capital to stock buybacks? The answer is anIRR calculation.(Slide 8)

Asked on the following presentation:

Ultimate Project Management Toolbox

Have you ever wanted to run a project like Elon Musk? What about the ability to predict a project’s success like a financial analyst at Goldman Sachs?...

file_save

Download free weekly presentations