Module VI· LBO Model MechanicsIntermediate
Question

How do you model MOIC, and how does it differ from IRR?

Answer

MOIC equals total cash returned to sponsor divided by sponsor equity invested. It measures multiple of money, not time. IRR annualizes return and is sensitive to timing. A 2.0x MOIC over 3 years has much higher IRR than 2.0x over 7 years. Use both metrics for sponsor returns.