## What is MOIC?

**MOIC** stands for “Multiple on Invested Capital” and measures investment returns by comparing the value of an investment on the exit date to the initial equity contribution.

The MOIC is of particular importance to the private equity industry, where the metric is used to track the performance of an LBO investment and to perform a comparative analysis of a fund’s returns.

- The MOIC measures the return on an investment by comparing the value of an LBO investment at exit relative to the initial equity contribution.
- The MOIC formula is calculated by dividing the total cash inflows (e.g. exit value) by the total cash outflows (e.g. the initial equity contribution).
- A higher MOIC is perceived more positively since it indicates a more profitable investment, while a lower MOIC suggests the investment is unprofitable (and at risk of not meeting the target return).
- The MOIC reflects the growth in the value of an investment on an absolute basis, whereas the IRR represents the yield an investment generates on an annualized basis.

Table of Contents

- How to Calculate MOIC
- MOIC Formula
- What is a Good MOIC?
- LBO MOIC Calculation Example
- Unrealized vs. Realized MOIC: What is the Difference?
- MOIC vs. IRR: What is the Difference?
- MOIC to IRR Table
- MOIC Calculator — Excel Template
- 1. LBO Model Entry Assumptions
- 2. LBO Returns Analysis Schedule
- 3. MOIC Calculation Example
- 4. MOIC Returns Analysis Example

## How to Calculate MOIC

The multiple on invested capital (MOIC) metric measures the value generated by an investment relative to the initial investment.

The term “MOIC” is interchangeable with several other terms, such as the “multiple on money (MoM)” and the “cash-on-cash return”.

Calculating the MOIC on an investment is generally straightforward, as the formula is simply the net cash return (“cash inflows”) divided by the initial cash contribution (“cash outflows”).

The multiple on invested capital (MOIC) is the ratio between two components, which determines the gross return.

**Cash Inflows ➝**Initial Capital Investment (e.g. Equity Contribution at Entry)**Cash Outflows ➝**Exit Value of the Risky Asset (e.g. LBO Target Company at Sale)

## MOIC Formula

The formula for calculating the multiple on invested capital (MOIC) on an investment is as follows.

**MOIC =**Total Cash Inflows

**÷**Total Cash Outflows

Where:

**Total Cash Inflows ➝**In the context of an LBO, the cash inflows stem from events such as the completion of a dividend recapitalization and a liquidity event, e.g. sale to a strategic or initial public offering (IPO).**Total Cash Outflows ➝**The cash outflows consist of namely one major item: the initial equity contribution that had been required to complete the buyout. Often, the outflow component will be displayed as a negative number in Excel, so an additional negative sign must be placed in front of the formula to work, i.e. to convert to a positive figure.

## What is a Good MOIC?

The multiple on invested capital (MOIC) essentially represents the returns earned per dollar of initial investment contributed.

- High MOIC → Higher MOIC is perceived positively because it is implied that the investments are profitable.
- Low MOIC → Lower MOIC is viewed negatively as it means that the investment is unprofitable (and investors are at risk of not receiving their target return or even recoup their initial capital).

## LBO MOIC Calculation Example

For example, imagine that a private equity firm (i.e. a financial sponsor) invested $20 million to fund the purchase of an LBO target.

If the post-exit return at the end of the holding period, Year 5, is $80 million, the MOIC on the investment is 4.0x.

- Initial Capital Investment = $20 million
- LBO Exit Proceeds in Year 5 = $80 million
- MOIC = $80 million ÷ $20 million = 4.0x

In other words, each $1.00 of invested capital contributed by the private equity firm grew to $4.00 over the five-year period.