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Learn/LBO Modeling/Module 4
4.2·6 min read

MOIC and IRR

MOIC is how many times the equity grew; IRR annualizes it. Sponsors target roughly 2-3x and 20-25% over about five years.

By the end you can
  • ✓Compute MOIC and IRR
  • ✓Interpret them against sponsor targets
MOIC=Exit EquityEntry EquityIRR=MOIC1/years−1\text{MOIC} = \dfrac{\text{Exit Equity}}{\text{Entry Equity}} \qquad \text{IRR} = \text{MOIC}^{1/\text{years}} - 1
IRR shown for a single entry and exit cash flow (no interim distributions).
Worked example · Judge the deal
Given
  • •Entry equity $400, exit equity $1,030, 5-year hold
Solution
  1. 1.
    1,030/400≈2.6×1{,}030 / 400 \approx 2.6\times
  2. 2.
    2.61/5−1≈21%2.6^{1/5} - 1 \approx 21\%
Answer

~2.6x and ~21% clears the typical 2-3x / 20-25% bar - a solid base-case buyout.

MOIC vs IRR

ignores time; fixes that. A 2.5x in 3 years is a far better than a 2.5x in 7. Always read them together.

Check yourself

Entry equity $300 grows to $900 over 5 years. MOIC and (roughly) IRR?

Practice in the simulator

Lock it in by building it yourself in a live, graded spreadsheet.

Compute MOIC and IRR in the simulator →
← Previous · 4.1
Exit Equity Value
Next · 5.1 →
The Three Levers