Calculating an Internal Rate of Return from a list of Cashflows

It may not be necessary to use Python for this. Since I’m not that familiar with financial calculations and I can’t find a clear answer on Google, could you tell me which formula you’d like to use?

Hi ​@redgeographics, thanks for taking the time.

The Internal Rate of Return (IRR) is a way to measure how profitable an investment is. It’s the percentage rate that makes the total money going in and out of a project add up to zero when adjusted for time. I.e. its the value of ‘IRR’ in the formula below that makes NPV (Net Present Value) equal to 0.

The tricky part is that there’s no single formula to calculate IRR directly. Instead, it generally has to be figured out through a process of trial and error, trying different percentages until you find the right one.

From what I have seen, while FME doesn't have a dedicated transformer for IRR calculations, the PythonCaller transformer allows you to leverage Python's financial libraries (like numpy or scipy) to perform the calculation efficiently. These libraries have built-in functions for IRR that handle the iterative process, saving time and effort.

In my research I found that there is a potential alternative to calculate IRR in FME without using Python, by using the FME Calculator transformer to implement the NPV formula manually and iterate over a range of discount rates, selecting the one that is closest to making NPV 0. However, this approach is more complex and less efficient than using Python, particularly given that my actual dataset will contain over 1,000,000 different RecordID’s for which IRR needs to be calculated for.

Cheers