MOIC vs IRR: Definitions, Formulas & PE Use

MOIC (multiple on invested capital) measures how many times a fund multiplied its money: exit equity value divided by invested equity. A deal that turns 20 million dollars of equity into 80 million is a 4.0x MOIC, per Wall Street Prep. IRR (internal rate of return) measures the same gain as an annualized percentage, so it accounts for how long the money was tied up. That is the whole distinction: MOIC ignores time, IRR is built on it. A 4.0x over five years is a strong roughly 32 percent IRR; the same 4.0x over ten years is a much weaker roughly 15 percent. Private equity firms quote both because together they answer how much and how fast.

TL;DR

• MOIC = exit equity proceeds divided by invested equity; a 4.0x means each dollar became four dollars (Wall Street Prep).
• IRR is the annualized return that sets a deal's NPV to zero; it accounts for holding period, MOIC does not.
• Same MOIC, shorter hold means a higher IRR; 2.0x in 3 years is roughly 26 percent IRR vs roughly 15 percent over 5 years (Wall Street Prep).
• Rule of thumb: doubling your money (2.0x) in about 3 years is roughly 26 percent IRR; in 5 years roughly 15 percent.
• PE cares about both because a high MOIC with a low IRR signals a slow, capital-heavy hold.

What is MOIC?

MOIC, the multiple on invested capital, quantifies the total return on a deal as a simple ratio: the value an investment returns divided by the equity put in. Wall Street Prep defines it as total cash inflows over total cash outflows, or for a portfolio, realized plus unrealized value over total initial investment. It is also called cash-on-cash or multiple on money (MoM), per Corporate Finance Institute. A 1.0x means you got your money back and nothing more; above 1.0x is profit, below 1.0x is a loss. MOIC is popular because it is unambiguous and impossible to game with timing assumptions. What it deliberately leaves out is time, which is exactly where IRR comes in.

What is IRR and how does it differ from MOIC?

IRR, the internal rate of return, is the annualized compound rate that makes the net present value of a deal's cash flows equal zero. Where MOIC tells you how many times you multiplied capital, IRR tells you how fast, by discounting each cash flow for the time it was outstanding.

$0 = \sum_{t=0}^{n} \frac{CF_t}{(1 + IRR)^t}$

Here CF is the cash flow in each period t, negative when you invest and positive when you receive distributions or exit proceeds, and IRR is the rate that makes the whole sum equal zero. Because the exponent grows with time, money returned sooner is worth more in IRR terms. That is why the same 3.0x MOIC produces a roughly 45 percent IRR over 3 years but only roughly 25 percent over 5 years, per Wall Street Prep. MOIC and IRR can disagree sharply: a high MOIC paired with a low IRR means returns were strong but slow to arrive, while a high IRR with a low MOIC means quick gains that never multiplied the capital much.

How do you approximate IRR from MOIC in your head?

You can convert a MOIC and a holding period into an approximate IRR without a calculator, which is exactly what interviewers test in paper LBOs. The exact formula takes the nth root of the MOIC and subtracts one, where n is the number of years held:

$IRR = MOIC^{1/n} - 1$

The practical trick, though, is to memorize a small grid and interpolate. Wall Street Prep publishes the standard reference table below. The anchors worth knowing cold: a 2.0x roughly doubles, so over about 3.5 years it is roughly 22 percent, and over 5 years roughly 15 percent; a 3.0x is roughly 25 percent over 5 years.

In an interview, state the MOIC first, then the holding period, then read the IRR off this grid. If you are told a deal returns 2.5x in 5 years, answering "about 20 percent IRR" lands instantly.

Why do private equity firms care about both?

Private equity firms report both metrics because each hides what the other reveals. IRR rewards speed, so a fund can post a dazzling IRR by flipping a deal in twelve months even if the absolute dollars are modest; MOIC catches that by showing the money barely multiplied. Conversely, a fund can grow capital 4.0x over a long hold and feel great about the MOIC, while the IRR quietly drags because the cash was locked up for years. Limited partners also know IRR can be flattered by early distributions, subscription credit lines, and recycling, none of which change MOIC. So the pair is reported together: MOIC for the magnitude of value created, IRR for the efficiency of the timing. When you model a leveraged buyout, you will compute the unlevered free cash flow and exit equity to derive MOIC, then solve for the IRR that ties the entry and exit together. The interim deleveraging that produces the exit equity runs through the cash sweep against the tranches in the LBO capital structure, and timed reps on both metrics sit in the LBO practice set.

Practice inside this guide

Paper LBO practice

Question 1 of 1

Walk through a paper LBO: entry at 8x EBITDA of 50, 4x leverage, and exit at the same multiple after five years.

Your answer

Reveal model structure

Quick Math

1. A bank's fee pool grows 8% a year. Using the Rule of 72, how many years does it take to double?

   Rule of 72: years to double = 72 ÷ growth rate.

2. Revenue grows 20% in year one and 20% again in year two. What is the cumulative two-year growth?

   Growth compounds: multiply (1 + rate) by itself, never add the two rates.

3. EBITDA doubled in 4 years. Roughly what annual growth rate does that imply?

   Run the Rule of 72 backwards: rate = 72 ÷ years to double.

Frequently Asked Questions

Is a higher MOIC always better than a higher IRR?

No. They answer different questions. A higher MOIC means more total dollars of profit, but if it took a long time to earn, the IRR can be weak. A higher IRR means faster compounding, but a quick flip can post a great IRR while barely multiplying the invested capital. Strong sponsors want both: a healthy multiple earned in a reasonable holding period.

What is a good MOIC in private equity?

There is no single number, and figures vary by fund and vintage, so do not quote a benchmark you cannot source. Conceptually, anything above 1.0x is a profit and below 1.0x is a loss, per Corporate Finance Institute. In a buyout model, sponsors typically underwrite to a multiple meaningfully above 2.0x over a roughly five-year hold, but the exact target depends on the fund and the deal.

Can MOIC and IRR move in opposite directions?

Yes, and that divergence is the point of reporting both. Extending a holding period raises MOIC if the asset keeps appreciating, but it lowers IRR because the same gain is spread over more years. A dividend recapitalization that returns cash early can lift IRR while leaving the final MOIC unchanged.

How do you calculate IRR if MOIC and years are given?

Take the nth root of the MOIC and subtract one, where n is the number of years held. For a 2.0x over 4 years, that is the fourth root of 2 minus one, or about 19 percent. For mental math, lean on the Wall Street Prep grid: 2.0x in 3 years is roughly 25 percent, 3.0x in 5 years is roughly 25 percent, and interpolate between them.

Does MOIC account for fees?

It depends on whether you are quoting gross or net MOIC. Gross MOIC is measured at the deal level before fund-level management fees and carried interest; net MOIC is what limited partners actually keep after those costs. Net is always lower than gross, so always clarify which one a number refers to.

Why use MOIC instead of just IRR?

Because IRR can be manipulated by timing assumptions, leverage at the fund level, and early distributions, whereas MOIC is a clean multiple of money in versus money out. MOIC is harder to flatter and easier to sanity-check, which is why it is reported alongside IRR rather than replaced by it.

Sources

• Wall Street Prep, "Multiple on Invested Capital (MOIC)": https://www.wallstreetprep.com/knowledge/moic-multiple-on-invested-capital/ (checked June 2026)
• Corporate Finance Institute, "MOIC in Private Equity": https://corporatefinanceinstitute.com/resources/wealth-management/moic-private-equity/ (checked June 2026)
• Wall Street Prep, "Internal Rate of Return (IRR)": https://www.wallstreetprep.com/knowledge/irr-internal-rate-of-return/ (checked July 2026)