How do you calculate IRR and MOIC?
A core Private Equity interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
MOIC = Exit Equity / Entry Equity. Simple ratio, ignores timing. IRR = annualized return accounting for timing of cash flows. For a 5-year hold: 2.0x MOIC = ~15% IRR, 2.5x = ~20%, 3.0x = ~25%. IRR is what LPs care about because it accounts for how long their capital was locked up. MOIC matters for magnitude.
WHAT INTERVIEWERS LISTEN FOR
- ✓MOIC = Exit Equity / Entry Equity
- ✓IRR accounts for timing of cash flows
- ✓IRR is annualized return
- ✓LPs care about IRR for time value
- ✓MOIC ignores timing, measures magnitude
COMMON MISTAKES
- ✗Confusing MOIC with IRR
- ✗Ignoring time horizon in IRR calculation
- ✗Stating MOIC is more important than IRR
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