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Startup Financial Metrics Guide: NPV, IRR, and ROI Explained

Essential financial metrics for investment decisions — NPV, IRR, and ROI explained with practical examples. A must-read guide for startup founders and investors.

Why Financial Metrics Matter

Whether you're a startup founder or an investor, objective financial metrics are essential for evaluating business profitability. "If I invest 100M KRW, how much will I earn?" — ROI, NPV, and IRR each answer this from different perspectives.

ROI (Return on Investment)

The most intuitive metric — the ratio of profit to investment cost.

ROI = (Net Profit ÷ Investment Cost) × 100%

ProjectInvestment3-Year ProfitROI
Mobile App Dev50M KRW80M KRW160%
Cafe Business100M KRW40M KRW40%
Real Estate300M KRW60M KRW20%

Pros: Simple and intuitive. Cons: Ignores time value of money; hard to compare projects of different durations.

📈 ROI Calculator Calculate return on investment instantly

NPV (Net Present Value)

The sum of future cash flows discounted to present value, minus the initial investment. It accounts for the time value of money.

NPV = Σ [CFt ÷ (1+r)^t] - Initial Investment

NPV Calculation Example

100M KRW initial investment, 10% discount rate, 30M KRW annual return for 5 years:

YearCash FlowPV FactorPresent Value
0-100M1.000-100M
130M0.90927.27M
230M0.82624.79M
330M0.75122.54M
430M0.68320.49M
530M0.62118.63M
NPV+13.72M KRW

NPV > 0 means the investment is worthwhile. NPV < 0 means it's better to pass.

💎 NPV Calculator Evaluate investment value with net present value

IRR (Internal Rate of Return)

The discount rate that makes NPV equal to zero — interpretable as the project's expected rate of return.

In the above example, the IRR is about 15.2%. Since this exceeds the required return (10%), the investment is worthwhile.

  • IRR > Required return: Invest
  • IRR < Required return: Pass
  • Higher IRR = More profitable project

Comprehensive Comparison

MetricQuestionTime ValueDecision RuleLimitation
ROIHow much did I earn?NoHigher is betterIgnores time period
NPVWhat's left in today's dollars?Yes> 0 means investRequires discount rate
IRRWhat's the return rate?Yes> Required rate means investMultiple solutions possible

Additional Startup KPIs

  • Burn Rate: Monthly net cash consumed. Cash on hand ÷ Burn Rate = Runway (months of survival).
  • CAC (Customer Acquisition Cost): Marketing spend ÷ New customers. LTV/CAC > 3 is healthy for SaaS.
  • MRR (Monthly Recurring Revenue): Core metric for subscription businesses.
  • Margin Rate: (Revenue - Cost) ÷ Revenue. Shows product/service profitability.
💹 Margin Calculator Calculate margin rate and profit from cost

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