Your Internal rate of return is a good measurement tool for a couple reasons, but first what is it?
The IRR is the rate of return on a particular investment or company without taking into account any outside factors such as inflation or interest.
This lets you see how good a company or investment is actually doing compared to other companies or investments when you eliminate differences like financing. The reason you want to eliminate things like financing or other outside factors, is because they do not tell you anything operational about the business. The fact that the business took out a loan doesn't make it's employees less skilled or processes less effective.
Lets say you have Company A and Company B, both companies make the same product and are in the same line of business. One however was financed with stock (Comp A) and one with bonds (Comp B). Coincidentally, Company B (bond company) will have to make large interest payments, but both have the same total investment into the company.
These interest payments will lower Net Income, other ratios such as profit margin. Company A will probably have a higher profit margin, lets say 10%, while company B will have a lower one, lets say 8%.
So you invest in company A right? It is making more money...
Not necessarily. This is where the IRR comes into play. Lets take out interest expense and see what the companies are making on an operational level. Lets say in our example that Company A is poorly run, and its IRR is only 11%, marginally better than its Net Margin. However maybe company B is run by a prodigy (who kept control by using bond financing), and Company B has an IRR of 20%.
This means that although company A generates more net profit, Company B is making much better use of its Assets. Each year, Company B makes $2 for every $10 invested (which it then pays interest out of), while Company A only makes $1.10 for every $10 that is invested in it. Over the long run, Company B is going to be a much better investment, it will eventually pay off it's debt, and have significantly higher profit margins than Company A.