Multiple on Invested Capital (MOIC)

Multiple on Invested Capital, or MOIC, compares the sum of distributions received and the current value of remaining holdings with invested capital. It shows by what multiple an investment has increased overall. A MOIC of 3 means, for example, that one euro has become three. It includes both distributions already received and the current value of holdings still owned, so for live investments a distinction must be drawn between the realised and the unrealised portion. Its significance emerges above all in combination with the internal rate of return, since the two illuminate different aspects: the multiple measures absolute return without regard to time, while the internal rate of return measures a return dependent on the amounts and timing of cash flows without reflecting absolute size.

Doubling money in one year produces a very high rate of return at a multiple of two, while tripling it over eight years produces a moderate rate at a much higher multiple. That is precisely why both are always reported together. A practical advantage of the multiple is that it cannot be improved through the timing of capital calls and distributions, which makes it more robust than the internal rate of return.

In communication with investors it also serves as an intuitive measure, because it answers directly how much the money invested has become. It should be noted that the value of a holding still owned rests on the manager's valuation and is only confirmed on sale. Whether the metric is calculated before or after fees matters equally. In investment decisions it serves as a target from which, together with an assumed holding period, the exit multiple required can be derived.