MOIC vs IRR

Why can the same MOIC have a different IRR?

Three synthetic investments each require sponsor equity 5,000 and return total sponsor cash of 10,000 in EUR thousands. MOIC is 2× in all three. The LBO Model supplies the sponsor-return engine; this exercise separates total cash received from when it is received.

Set explicit operating and transaction inputs

The native models contain 2026 actuals and forecasts through 2031. Opening PP&E and equity are each 5,000. Annual revenue is 2,000, COGS 1,000, overhead zero, depreciation 1,000 and capex 500. EBIT and tax are zero, working-capital movements are zero, so the deal generates 500 cash each forecast year. This finite teaching case uses less capex than depreciation; it is not a sustainable-growth recommendation.

Entry is at the end of 2026 with EV 5,000 and acquisition-bridge cash and debt both explicitly overridden to zero. There is no new debt, rollover, fee, other source, management dilution or minimum-cash requirement; sponsor ownership is 100%. See LBO Sources and Uses to reconcile the acquisition funding.

LBO holding-period returns: compare three years with five

Case A exits after 2029, three years after entry. Exit EBITDA is 1,000 and the supplied exit multiple is 8.5×: EV 8,500 plus accumulated cash 1,500 gives sponsor proceeds 10,000. Case B exits after 2031, five years after entry. Its supplied 7.5× exit multiple gives EV 7,500 plus cash 2,500, again proceeds 10,000.

Exit assumptions are entered explicitly to hold total receipts constant despite different cash accumulation. These are not otherwise identical valuation cases, and the model does not solve for those multiples. MOIC is 10,000 / 5,000 = 2× in both; native IRR is 25.9921% for A and 14.8698% for B. Receiving the same cash later reduces the time-dependent return.

Fund the interim distribution and keep total receipts fixed

Case C uses the same five-year operating forecast and 7.5× exit assumption as B. It distributes 1,000 at the end of 2028. By then, two forecast years have generated 500 each, so the distribution is funded: cash goes from 1,000 to zero without a shortfall.

Remaining cash at exit is 1,500 instead of 2,500. Exit proceeds are 9,000; the earlier distribution is 1,000. Total sponsor receipts remain 10,000 and MOIC stays 2×. IRR rises to 16.1432% because 1,000 is received at time 2 rather than time 5. Adding the distribution without reducing ending cash would overstate total return.

Read the actual dates used by the return engine

The engine uses each model period’s exclusive end boundary. Entry after calendar 2026 is 2027-01-01; A’s exit is 2030-01-01; B and C exit at 2032-01-01. C’s 2028 distribution uses 2029-01-01. ACT/ACT year fractions from the entry boundary are therefore 0, 2, 3 or 5 as applicable, including calendar leap years.

IRR is the rate at which the dated sponsor cash flows have zero NPV. The product converts the period dates to year fractions and evaluates its existing IRR function; this page reports that output. MOIC sums sponsor exit proceeds and positive interim receipts, then divides by sponsor investment. It does not assign a higher multiple merely because a payout occurs sooner.

Reproduce the sponsor-return cases

1. Download the native files for A: three-year exit, B: five-year exit and C: five years with distribution. Open the LBO model and explicitly import each through Manage models → Import. In Model, switch to Advanced before editing, then return to Value or Deals as appropriate. A blank workspace may first show Activate; the example file already has the relevant tool active. The CTA opens your workspace and never imports the example automatically.

2. In Deals → LBO compare Entry 2026, EV 5,000, the zero cash/debt acquisition bridge and zero financing. A uses Exit 2029 and multiple 8.5; B and C use Exit 2031 and multiple 7.5. Sponsor equity is 5,000 in each. Open Sponsor returns and compare proceeds, interim distributions, MOIC and IRR against the tables.

3. In C, open Interim distributions and check 1,000 in 2028; other years are zero. Under Cash / debt paydown verify cash after that payment is zero in 2028 and 1,500 at exit, with no shortfall. Temporarily clear the 2028 distribution: the model becomes B, exit proceeds return to 10,000 and IRR to 14.8698%.

Keep the comparison within its scope

These are investment-level sponsor outputs. The page does not provide fund-level reporting, carried interest, waterfalls, LP/GP allocation, DPI or TVPI analytics. Distribution inputs belong to model-period ends, not arbitrary intra-period payment dates. The engine withholds IRR and MOIC when modeled financing is insufficient.

Company Valuation compares valuation methods, Financial Model Analysis examines the wider forecast, and Scenario Modeling organizes explicit cases. A higher IRR by itself does not establish that one investment has better operating economics or lower risk. Displayed returns are rounded.

To hold timing constant and examine pricing instead, compare Entry and Exit Multiples in an LBO. To understand why a smaller sponsor cheque can leave the same cash multiple, use Rollover Equity in an LBO.