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Estimation of Internal Rate of Return Under Nonsteady Conditions

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  • Erkki K. Laitinen

Abstract

This study presents a method to estimate the IRR (internal rate of return) from published financial statement data under nonsteady conditions. The IRR is allowed to systematically change over time. The method provides an estimate for the current profitability of periodic total expenditure, its rate of change, and the firm‐level profitability. Four competing steady and nonsteady statistical models are evaluated by simulation showing that a restricted nonsteady model may give the most reliable estimates. The model is applied to Finnish firms to illustrate how to use the model in practice. Three samples of publicly traded and nontraded firms are considered.

Suggested Citation

  • Erkki K. Laitinen, 1997. "Estimation of Internal Rate of Return Under Nonsteady Conditions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(9‐10), pages 1217-1251, October.
    • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:9-10:p:1217-1251
    DOI: 10.1111/1468-5957.00160
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    Cited by:

    1. Akalu, M.M. & Turner, J.R., 2001. "The Practice of Investment Appraisal," ERIM Report Series Research in Management ERS-2001-77-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    2. Laitinen, Erkki K., 2006. "Financial statement data in assessing the future potential of a technology firm: The case of Nokia," International Review of Financial Analysis, Elsevier, vol. 15(3), pages 256-286.
    3. Akalu, M.M. & Turner, J.R., 2001. "Investment Appraisal Process," ERIM Report Series Research in Management ERS-2001-78-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

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