Usage and Formula. Multiple on Invested Capital or MOIC is a common investment metric used mostly in private equity in order to measure how much value an investment is able to generate. While popular, not many people know how to calculate this multiple or when it should be used.
Multiple on Invested Capital (or “MOIC”) allows investors to measure how much value an investment has generated.
Multiple on Invested Capital (MoIC) is calculated by dividing the fund's cumulative realized and unrealized value by the total dollar amount of capital invested by the fund. Distribution to Paid-In Capital (DPI) is a measure of the cumulative investment returned to the investor relative to paid in capital.
MOIC and IRR are both valuable to investors. MOIC's simplistic calculation clearly tells investors how much money they're ultimately receiving from an investment. On the other hand, IRR allows for investors to understand the impact of varying hold periods on investment returns.
Gross multiple of invested capital (MOIC) expresses as a multiple how much a private equity company has made on the realisation of a gain, relative to how much they paid for it. E.g; if a private equity company reports a MOIC of 1.8x. the gain is 1.8 times greater than the original invested capital.
Cash-on-cash return is a closer conceptual cousin to MOIC, but there's still a difference: while cash-on-cash return indicates return at a given point in time (say, one year into the investment lifecycle), MOIC evaluates the return over an investment's entire life without regard for when cash flows materialize.
IRR and MOIC are pre-personal-tax (PPT). An investor, typically, compares the return from an investment with the option of, say, investing in a T-bill, which is pre-personal-tax. MOIC ignores time value of money, IRR does not.
Allows investors to measure how much value a fund has created. MOIC can be expressed as a gross or net metric. Net MOICs are generally net of fees and carry (also called “carried interest”). Often best used at the end of a fund's life.
If the company sells for $10 million, all of the sale proceeds will be paid to the preferred shareholders to cover their liquidation preference. They will make a 1x return on their investment, which will be classified as a 1x Multiple On Invested Capital (MOIC).
The MOIC, in this case, would be 1.5. MOIC is best used for determining the following: A GP's ability to choose investments that are likely to give good returns. A GP's ability to make good raw investments.
For example, if an investor wanted to earn a 2X MOIC on their investment they would need to hold an investment with a 21.32% IRR for approximately 3.59 years. *IRR is calculated using the XIRR Function in Excel. The approximate MOIC of 2X is reached via the following formula: (1.2132^3.59) = 2.00132.
3 MoM is also often referred to as Multiple on Invested Capital (MOIC). 4 Other fees include transaction, portfolio company, monitoring, broken deal, and directors' fees. value resides in active portfolio companies.
MOIC = medical officer in-charge; LO = liaison officer; MO = medical officer; CC = Care Coordinator; AMO = assistant medical officer; SN = staff nurse.
In practice, the MoM is used alongside the internal rate of return (IRR), as the MoM metric cannot be used by itself as it fails to consider the time value of money. For instance, a 2.0x multiple could be sufficient for certain funds if achieved within three years.
Investment Multiple
It is calculated by dividing the fund's cumulative distributions and residual value by the paid-in capital. It provides insight into the fund's performance by showing the fund's total value as a multiple of its cost basis.
The "TVPI" is the "Total Value to Paid-in Capital" ratio. This ratio has other names, including Multiple of Investment Cost (MOIC) and the Return on Invested Capital (ROIC). TVPI is simply the total estimated value of an investment divided by the total capital invested.
What Is a Good ROI? According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation.
Investors hoping for deals with a lower purchase price may, therefore, want a high cap rate. Following this logic, a cap rate between four and ten percent may be considered a “good” investment. According to Rasti Nikolic, a financial consultant at Loan Advisor, “in general though, 5% to 10% rate is considered good.
Q: What is a good cash-on-cash return? A: It depends on the investor, the local market, and your expectations of future value appreciation. Some real estate investors are happy with a safe and predictable CoC return of 7% – 10%, while others will only consider a property with a cash-on-cash return of at least 15%.
Returns are then measured by the “internal rate of return” (IRR) (which is the discount rate that makes the net present value from the entry date of all cash flows between entry and exit equal zero), or its quicker proxy the “multiple of money” (MoM) which is simply the amount of money returned divided by the amount ...
The higher DPI, the better. A DPI of 1.0x means that the fund has returned to LPs an amount equal to their Paid-in-Capital. A DPI of 3.0x means the fund has returned to LPs an amount equal to 3.0x their Paid-in-Capital. A 3.0x DPI for a fund is a good result.
ROIC Example Calculation
Simply put, the profits generated are compared to how much average capital was invested in the current and prior period. If a company generated $10 million in profits and invested an average of $100 million in each of the past two years, the ROIC is equal to 10%. $10m ÷ $100m = 10%
While the ROIC considers all of the activities a company undertakes to generate a profit, the return on investment (ROI) focuses on a single activity. You get the ROI by dividing the profit from that single activity (gain – cost) by the cost of the investment.
Is ROE the Same As ROIC? ROIC is another way of saying ROC. ROC takes into account both debt and equity, while ROE only looks at equity.