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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