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LBO

What Is Multiple on Invested Capital (MOIC)?

MOIC measures the total return on a private equity investment by dividing the total value received (exit proceeds plus any interim distributions) by the total equity invested. A 2.5x MOIC means the investor received $2.50 for every $1.00 invested.

Formula

MOIC = (Total Distributions + Remaining Value) ÷ Total Equity Invested Or for a simple exit: MOIC = Exit Equity Value ÷ Entry Equity Value

What Is MOIC?

Multiple on Invested Capital (MOIC), also called Money-on-Money or Cash-on-Cash return, measures how many times an investor's capital was multiplied. It is calculated by dividing total distributions plus remaining value by total equity invested.

MOIC in Private Equity

MOIC is the simplest and most intuitive return metric in PE. If a fund invests $200M in equity and ultimately receives $600M (from exit proceeds, dividends, and recaps), the MOIC is 3.0x — the fund tripled its money.

MOIC vs. IRR

MOIC does not account for time. A 3.0x return over 3 years is far more impressive than 3.0x over 10 years. IRR captures this time dimension. Both metrics are reported together because they answer different questions: MOIC tells you how much total value was created, while IRR tells you how efficiently capital was deployed over time.

What Drives MOIC in an LBO

Entry multiple (buying cheap increases upside), EBITDA growth during holding period, exit multiple (selling at a premium), leverage and debt paydown, and total equity invested. The three sources of value — debt paydown, EBITDA growth, and multiple expansion — all contribute to a higher MOIC.

Typical MOIC Targets

PE firms typically target 2.0-3.0x gross MOIC. Top-performing investments achieve 3-5x+. A 1.0x MOIC means breakeven (money returned without gain). Below 1.0x means a loss.

MOIC for Fund-Level Returns

At the fund level, MOIC is calculated as total value to paid-in capital (TVPI). Unrealized investments use fair market value estimates. Distributions to paid-in capital (DPI) measures only realized cash returns. DPI is considered more reliable because it represents actual cash returned to investors.

Example

PE firm invests $300M equity (in a $900M LBO with $600M debt). Over 5 years, EBITDA grows from $112.5M to $150M, debt is reduced to $300M, and the company is sold at 8x EBITDA = $1.2B. Exit equity = $1.2B − $300M = $900M. MOIC = $900M ÷ $300M = 3.0x.

Why Interviewers Ask About This

MOIC is the most intuitive PE return metric and comes up frequently in LBO interview questions. Interviewers expect you to calculate MOIC from entry and exit assumptions, explain how it relates to IRR, and discuss what factors drive higher multiples. It is often the first metric discussed when evaluating an LBO investment.

Common Mistakes

Forgetting to include interim distributions (dividend recaps) in the numerator

Confusing MOIC with IRR — MOIC ignores timing, IRR does not

Not understanding that a high MOIC over a very long period may translate to a mediocre IRR

Using enterprise value instead of equity value when calculating MOIC for the PE sponsor

Related Terms

Enterprise Value (EV)

Valuation

Enterprise Value represents the total value of a company's operations, calculated as market capitalization plus debt, minority interest, and preferred shares, minus cash and cash equivalents. It reflects what an acquirer would pay to own the entire business.

Leveraged Buyout (LBO)

LBO

A leveraged buyout is the acquisition of a company using a significant amount of borrowed money (debt) to fund the purchase price, with the target's own cash flows used to repay the debt over time. LBOs are the primary investment strategy of private equity firms.

Internal Rate of Return (IRR)

LBO

IRR is the annualized rate of return that makes the net present value of all cash flows from an investment equal to zero. It is the primary return metric used by private equity firms to evaluate and compare leveraged buyout investments.

Financial Sponsor

LBO

A financial sponsor is a private equity firm, hedge fund, or other institutional investor that acquires companies primarily for financial returns rather than strategic operating synergies. Financial sponsors are the buyers in leveraged buyouts and a major source of M&A deal flow.

Dividend Recapitalization

LBO

A dividend recapitalization is when a PE-owned company takes on additional debt specifically to pay a large cash dividend to its equity holders (the PE sponsor). It allows the sponsor to extract returns earlier in the holding period without selling the company.

Frequently Asked Questions

What is a good MOIC for private equity?

PE firms typically target 2.0-3.0x gross MOIC. Top-quartile deals may achieve 3-5x+. A 1.0x MOIC is breakeven, and below 1.0x means a loss. The target depends on the strategy, risk profile, and vintage year market conditions.

How does MOIC relate to IRR?

MOIC measures total return; IRR measures annualized return. A 3.0x MOIC over 3 years has a much higher IRR (~44%) than 3.0x over 7 years (~17%). Investors evaluate both together — MOIC for total value creation and IRR for time-adjusted performance.

What is the difference between TVPI and DPI?

TVPI (Total Value to Paid-In) includes both realized distributions and unrealized value of remaining investments. DPI (Distributions to Paid-In) counts only actual cash returned to investors. DPI is considered more reliable as it reflects real, realized returns.

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