Buyout deals are often underwritten toward a 2.0x to 3.0x gross MOIC over the hold, though the right target depends on hold period and risk. A 2.5x in four years is a very different annualized return from a 2.5x in eight years.

How are MOIC and IRR related?

MOIC measures magnitude and IRR measures speed. A 3.0x MOIC earned over five years is roughly a 25% IRR. The same MOIC over a longer hold produces a lower IRR, so the two are always read together.

MOIC (Multiple on Invested Capital) - Definition & Example

Q: What does MOIC stand for?

Multiple on Invested Capital. It is total value returned divided by capital invested, also called the multiple of invested capital or, at the fund level, TVPI. It is the cash-on-cash multiple.

MOIC (Multiple on Invested Capital) is total value returned divided by capital invested, also called the multiple of invested capital or, at the fund level, TVPI. It is a pure measure of how many times the money was returned, with no regard to time, which is why it is also known as the cash-on-cash multiple. Put in a dollar, get three back, and the MOIC is 3.0x.

Why it matters

MOIC answers the question "how many dollars did we make per dollar in," the complement to IRR's "how fast." Together they describe a return completely: magnitude and speed. A deal can post a striking IRR on a thin MOIC, or a modest IRR on a large MOIC, and only seeing both tells you which return actually moved the fund.

Worked example

Equity in, equity out

Put in $60M of equity, return $180M at exit, and the MOIC is 3.0x. That same 3.0x is roughly a 25% IRR over a five-year hold. Stretch the hold and the MOIC is unchanged while the IRR drifts down, which is exactly why the two numbers belong side by side.

The common mistake

Comparing MOICs across very different hold periods without looking at IRR. A 2.0x in three years and a 2.0x in eight years are the same multiple but very different annualized returns. MOIC tells you the size of the win; IRR tells you whether it came fast enough to matter to the fund's overall performance.