Estimation of Internal Rate of Return Under Nonsteady Conditions

Erkki K. Laitinen

Journal of Business Finance & Accounting, 1997, vol. 24, issue 9‐10, 1217-1251

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.

Date: 1997
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