XIRR stands for Extended Internal Rate of Return.

Here’s a breakdown:

• IRR (Internal Rate of Return):
  The annualized rate of return at which the net present value (NPV) of all cash flows (both incoming and outgoing) from an investment equals zero.
  → Used when cash flows occur at regular intervals (like monthly or yearly).

• XIRR (Extended IRR):
  A more flexible version of IRR that can handle cash flows occurring at irregular dates.
  → Commonly used in Excel or financial analysis to calculate the annualized return when investments and withdrawals happen at uneven time intervals.

Formula conceptually:
It finds the rate ( r ) such that:

$$\sum_{i=1}^{n} \frac{C_i}{(1 + r)^{(t_i - t_0)/365}} = 0$$

Where:

• ( $C_i$ ) = cash flow at date ( $t_i$ )
• ( $t_0$ ) = date of first cash flow
• ( $r$ ) = XIRR (annualized return)

Example use case:
If you invest $1,000 on Jan 1, then $500 on Mar 15, and withdraw $2,000 on Oct 10, XIRR tells you your true annualized return accounting for the actual dates of those transactions.